Student’s Question:
GBP/USD daily chart.
Double bottom with MACD crossover, enter long position.
Question: after MACD crossover enter the next candlestick open price: 1.4063, where to put stop? the next candle low point was 219pips different from entry price, means would be stopped out if stop set up within 219pips.
if under support level, would be 1.3620, there would be 443pips risk. pass this trade because of the high risk level?
Thanks!
Power Course Instructor’s Answer:
The way the MACD indicator was used for this trade was fine...good job. The crossover of the MACD line and the Signal line to the upside indicate that a bullish position is favored.
Keep two things in mind, however…the overall trend on this GBPUSD pair still has a bearish bias on the Daily chart and, as such, the higher probability trades will be in that direction; also, the more “touches” of a trendline there are, the more valid it can be considered. Trendline resistance on the chart posted has very few touches with most of them coming at the very beginning of the line. More touches in the middle of the line would greatly enhance its validity.
Regarding the placement of stops…
On the chart below three likely points for stop placement have been identified in red.
When placing stops, one always needs to take into consideration the size of the trading account so as not to be in an overleveraged situation. Never put more than 5% of the account at risk at one time.
Another stop placement method is to go down to a 1 hour or 4 hour chart to look for likely points to place the stops. On a 1 hour or 4 hour chart, the need for a stop to be as deep as they will be on a Daily chart is much less likely.
