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64 Lesson 5) Principles of Trading - All Rights Reserved

better opportunity to buy. You should always be thinking of this concept,

whenever you trade.

Okay, let’s take a look now at how to set your stops.

You should always use stops. Even though I am sitting in my trading

station all day long, I always set up my stops in the resistance or support areas

before my trade. I always give it a little bit of room too, around 4-10 pips.

But why do I set stops?

I know that most intraday traders want to pull the trigger and exit the

trade themselves. The ideal stop is you, of course. The best traders don’t put in

stops, they want to exit the trade at the exact moment they choose to.

But most of us are not capable of that. We get too attached to some

trades, we freeze, and we are prone to psychological mistakes. We can’t just

say “I’m wrong, I’m getting out of this trade” easily and without attachment.

This is why you should always set your stops, because this way, you are

sure to exit the trade at a point you have specified beforehand. Imagine the

stop as your car’s airbag. If you make a mistake, it will be there to help you


Always place your stop (in your mind) before you put in the trade.

Always know where it is before you put in the trade, don’t put in the trade and

then think about where the stop is going to be.

The good thing about setting a stop, is also because you can clearly

manage your risk-reward ratio. Before you enter the trade, you must set your

stop to know your risk.

And where do you put the stops? Well, we learned this already. Just use

the support and resistance areas we have already learned about. There is no

mystery to it.

Let’s take a look now at the indicators.

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