Q: Forex Trading with Small vs. Big Stops

by Boris Schlossberg & Kathy Lien Ask Kathy and Boris

Question:

Hi Kathy, Boris. I am following you on CNBC and twitter every day. I am trading forex now since August last year. I started off very well, had good profits within a few months. Right now I try to trade smaller positions with a smaller Stop Loss and seem to lose more than when I was trading larger positions. Does it make more sense in your opinion to do less more valuable trades within a day, rather than lots of small trades? Thanks in advance.

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Answer:

Thank you for your question! There are many different ways to approach forex trading – one is to aim for smaller profits with a tighter stop loss and the other is to have wider stops and larger targets and there are pros and cons of both. Which one you pick really depends on your style of trading and your personality – not everyone has the stomach for large stop losses and could second guess their positions every 10 pip move against them. The key to short term trading is to use a stop that is not too large or too small. Typically with our own short term trading, we use a stop of 30 to 50 pips. If you use a stop of 10-15 pips on a short term trade, the odds of being stopped out is higher. Along these lines, it is important to realize that a 30-pip stop in the EUR/USD is very different from a 30 pip stop in GBP/JPY, which has greater volatility because a 30 pip move in the EUR/USD is more significant than the same move in GBP/JPY.

**Stops can be subject to slippage by your broker

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