The forex markets are highly volatile. There is so much noise in the intra day forex market; it becomes difficult for new retail forex traders to know where to put the stop loss. The prices in the intra day market keeps on jumping 10-20 pips for no apparent reason.
This becomes frustrating for many new day traders. Most constantly find their stop losses being tripped due to noise even when the rates are going in the anticipated direction.
Most of the new day traders use a static 10-20 pip stop loss. This is an arbitrary choice many traders make. How about using a trailing stop? If you place the trailing stop loss too close; you will find your stop hit too early. And if you place it too far; you will have to forgo potential profits if the price retraces later on.
You should place your stop loss on dynamic levels. Most of the professional traders do use stop loss but mostly place it on their computers making them invisible to their brokers.
Stop hunting is something the brokers are continuously doing. If a broker finds many stop losses at a particular price level on his price feed; he can easily trip them using a momentary blip in the price. You cant even complain. The momentary spike happened due to a sudden large transaction in the market.
Do you know this many professional forex traders only use a stop loss in their mind. They plan entry/exit for each position. Keep on monitoring it changing, the stop loss in their mind as the rate fluctuates. When they reach the desired outcome, they close the position. With experience, you will also learn to do the same.
Moving Averages, Bollinger Bands, SARs etc can be easily used as dynamic stop losses by you. It is a good way to manage your risk while letting the currency markets to do what it wants.
With more experience, you will learn that placing fixed stop losses actually harms more. Rather than helping, using a fixed stop loss can hurt you more emotionally, psychologically and profit wise.
Never ever trade, just before a major economic news release. Dont place your stop loss close to or at round numbers and at times of thin liquidity in the markets.
You should understand that your broker can and will use stop hunting to take out your positions using noise in the market as an excuse. Forex trading and casinos have many things in common. You should learn how to beat the markets and the brokers only then you will become a successful forex trader.
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