It is essential to learn about targets and stops in Forex trades before you put in real money. Numerous trading websites that provide demo accounts so that you can practice well ahead of time. But unless you know where to place your targets and stops, you won’t be able to understand where to use them in real-time.
Before you know where to put your targets and stops, you should understand the concept of barriers thoroughly. Barriers are certain crucial areas in your Forex trading map. Some of them are as follows:
- Recent congestion areas
- Recent areas of high and low
- Historic areas of high and low
- Areas of SR
Placing your targets and stops according to the barriers is like protecting your fort. Experts believe that you should practice putting targets and stops so that you have control over your trades. Forex Academy, for example, teaches about different situations when you can use these techniques to best effect.
Placing targets and stops
Barriers are essential when it comes to using stops and targets. For stop-loss, you should always place it behind your barriers. This is like the protective wall that guards the barriers in the first place. Consider the prices of the currencies and then place your stop. It should protect your predicted price from going down further because of the barriers.
On the other hand, you should place your targets just ahead of the barriers. For example, if you place a target that is way beyond the yearly high, you may not reach your target because the barrier is immensely strong in front.
Ideally, every trader should do a background check on the currencies before trading. This will give them an idea about the recent and historical highs and lows. You will also understand the congestion areas. A congested area would mean that most people have traded during that period.
Whatever target or stop works best, keep a thumb rule in mind. You shouldn’t be greedy if you get a favorable window. Most traders try to put their targets and stop slightly far from the barriers in the hope of earning bigger. While this may be a successful strategy sometimes, it also fills you with greed, something that can counter your earnings and convert them into significant losses. That is why it is always better to practice placing stops and targets so that you have an idea about different market conditions.
Things to expect
You cannot expect the price point to hit your target all the time. That’s the reality of Forex trading. Similarly, the price may not drop as low as your stop point. Even veteran Forex traders say that they make mistakes while putting stops and targets. So, if you don’t hit the bull’s eye, there is nothing to worry about.
It takes time to understand the nuances of the Forex market. Have some patience, and make the most of your demo account. It will help you learn how to place stops and targets successfully.