I’ve been setting a static 50 pip stop loss with a static 100 pip limit. My question here is what does 50 pip stop mean in both volatile and quiet markets? I mean, whether there will be any difference?
The reason people trade indices is because they involve less risk compared to share trading. And especially, if you trade on margin, indices are considerably safer than individual shares/stocks.
Of course there is. If the market’s quiet, a 50 pip stop can be a large move, while if the market’s volatile, this much stop can be quite a small move.
How about using an indicator like pivot points? This can help you use the latest market info accurately to analyze the risk management options.
There’s no fixed rule. Like I trade GBP/JPY and if you look at the daily chart, the average range is about 126 pips. So, if you’ll use 50 pip stop loss, it really won’t make any sense. You stop loss will be hit by the market much before it moves in your direction because of the average 126 pips per day.
Makes sense. It’s the volatility of the market and most importantly the time frame you’re trading that makes the difference.
Well, yes! Pivot points work great in the way that they help determine levels in which the market sentiment can take a turn that you weren’t expecting.
Exactly! With higher volatility comes the chances of a declining market and vice-versa. Knowledge of market volatility can truly help investors in aligning their portfolios.
Because of the integrated money management system, trading indices are quite secure and imo, a better option for many who find investing in individual stocks difficult and risky.
There is nothing like easy or difficult in the financial markets. Just find a way that works for you and you are good to go. Like I trade indices with fxview and cmc markets, I take care of the correlation between global economic events and the price patterns of major indices I want to invest in like DAX & S&P500.