It’s one of the most important aspects to trading. Actually if you take care of losses and keep them small, then the profits take care of themselves. Most people don’t realise that.
The Pips Predator works out a zone around which the odds are in favour of a move in a certain direction. It then suggests the most opportune time to enter. It does this based on indicators and mathematical algorithms based on years of observation of hard historic data.
But that does not mean the price may not move against you first. It is not a time machine which travels into the future, but rather something which says ‘there is now a 70% chance of a move into a trend based on historic observations of the same price behaviour’.
So what do you do if the price moves against you? Some people just wait and wait. In fact most private investors do that. But they do it out of fear of taking a loss. They are wrong to wait. Professionals get out quick, at a small loss, and then re-enter if warranted.
The reason professionals do this is because they know a small loss is a lot better than a big one. They know to protect their profits is the most important thing. They know they can get back in. That is an optimal strategy. It is better than a strategy of wait and pray.
So sometimes you may see the Pips Predator show an entry signal, and then the price go in the opposite direction (by a lot). That doesn’t bother us – we are already out by our own principles. If the price moves back beyond the entry, then we get back in.
What if you dont want to sit in front of the computer? That’s simple, you just do a stop loss where you say exit if price drops 2xATR (see later post on this). You can also add a limit order (take profit) which could be 3xATR.
Now of course by not being in front of the computer you are missing adding additional positions if the trade moves in your favour, but you add those orders at say each time the price moves to make you a 1% profit. Of course now you are adding more orders and that takes time.
Remember time=money. If you are not in front of the computer, that is fine, but it will cost something.
This will also be of importance:
http://www.pipspredator.com/a-complete-trade
Strategies for Placing a Stop Loss from Alpesh Patel on Vimeo.
Stop Losses and Where to Place Them from Alpesh Patel on Vimeo.