Setting Stop Losses Using Moving Averages

Discussion in 'Forex' started by LearningMarkets, Aug 20, 2008.

  1. LearningMarkets

    LearningMarkets ET Sponsor

    Many forex investors are uncomfortable trying to identify support and resistance levels on their own. They find themselves saying, "Well, support could be right here. On the other hand, it might be right here. Then again, it could be right here." [Pointing to different price levels each time] If you are someone who doesn't feel comfortable identifying support and resistance, or if you are someone who just doesn't like using arbitrary support and resistance levels to set your stop losses, don't worry. You have a lot of options available to you.

    One option is using a moving average to help you determine a concrete support/resistance level that you can use when determining where to place your stop loss. Once you have placed your moving average on your chart, you can set your stop loss just below it if you are long a currency pair, or just above it if you are short a currency pair. Of course, you do have to decide how far above or below to set the stop loss and what time frame to use on your moving average, but we'll talk about that in the video.

    Because moving averages---by definition---follow price movement, using a moving average to help you set your stop loss is similar to using a trailing stop loss. The one exception is you have to update your stop loss manually when using this methodolgy, while a trailing stop loss automatically adjusts.

    Check out the video below to learn more about this method for setting stop losses.