Volatility stop loss

Market volatility is the fluctuations in any market. When the price moves are sharp, markets are considered more volatile.

Knowing how much a currency pair tends to move can help you set the correct stop loss levels and avoid being prematurely taken out of a trade on random fluctuations of price. For instance, if you are in a swing trade and you know that EUR/USD has moved around 100 pips a day over the past month, setting your stop to 20 pips will probably get you stopped out too early on a small intraday move against you.

To make a profit in volatile markets you will have to ensure spreads are not too tight. You don't want to miss out on profits simply because your stop loss closed early as a result of random fluctuations. For example, if you saw the markets moved 100 pips for EUR/USD over the last week, setting stops 30 to 40 pips is more likely to get you into an early stop.

If this is too much stress, you should trade in less volatile market environments or practice with demo accounts till you are comfortable with it.

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