SAFER STOPS

SAFER STOPS
“Safer Stops” is really just a simple concept that can potentially save you a
few extra pips on those trades that end up as a loss. You know the cliché, “a
dollar saved is a dollar earned”, and as a trader when you can save some
losses (without sacrificing your trading opportunities too much) then it is
generally a good idea to do so.
So far you’ve learned that with scalping methods it is the standard approach to
start off your trade risking 10 pips. In some circumstances you might start off
with a larger pip risk (as you might do in “Surfing”, using a 20 pip stop), but
the general rule for scalping is 10 pips. What if you have a petit trend and say
the bottom of that wave is just 4 pips away? Should you still use a 10 pip
stop? Well you could, and most often you would but you could shave off a
couple of pips in times like these.
In “Forex Surfing” you’ve learned to add the pip spread to your
entry/stop/limit orders, and this is good for you to continue to do. Simply
subtract (in an uptrend, add in a downtrend) the pip spread plus 1 pip from the
base of the wave and use that as your stop.
So in our example above with the bottom of the wave being 4 pips away,
assuming we’re trading EUR/USD with a 3 pip spread then we could shave
our stop to being just 8 pips away rather than 10.
Sometimes doing this you’ll see the price coming down, hitting your stop and
going back into what could have been profits had you left your stop at 10
pips. At times like this you’ll hate me for having recommended doing this (it
also ticks me off when this happens to me). But often enough if the price
would have stopped you out at 8 pips or 9 pips then chances are you would
have also gotten stopped out at 10 pips (and at those times you’ll love me for
having recommended doing this). At least you’ll have saved a pip or two, and
cumulatively over 5 to 10 such trades this has a net result of saving you the
equivalent of one full bad trade. It doesn’t seem like much, but for a scalper
cumulative effect is the name of the game as you are accumulating small
profits and avoiding the accumulation of small losses.