I have decided to start my forex tips lessons with this topic because capital preservation is the most important aspect of forex trading and you can't preserve your capital unless you know how to set your stop loss correctly.Placing your stop losses incorectly will lead either to exiting a trade prematurely and missing a good oportunity or exiting too late and suffering big losses.Did it ever happened to you to enter a trade and the market going against you, hitting your stop loss only to discover shortly afterwards that the market reverted and went in the direction you initially anticipated? You don't have to answer this question, if you traded the forex market for at least a month, you've surely experienced this frustrating situation.So what do you do when you get trades like these? The vast majority of beginners in forex trading, immediately assume that their stop losses are too tight so they start using larger stop losses to "let the trade breathe".Is this the answer? Absolutely NOT! Than where is the mistake? The mistake lies in the aproach many newbies are using when placing their stop loss.Unexperienced forex traders are entering trades using predetermined stop losses and profit targets (like 30 pips SL and 60 pips PT or 20/40) that have nothing to do with the reality of the market.First you should never trade on impuls. All your trades must be well planned in advance. You enter the market only when your plan generates a trading signal and at that moment you should know exactly where to place your stop loss and profit target.Your stop loss should be placed where the market tells you. Take a look at the charts and search for areas of support/resistance, draw trendlines, use fibonacci retracements and pivot points. You should place your stop loss in a point of inflection, If that level is breached it means you were wrong on the direction of the market and your trade is no longer valid.Of course this is no holy grail, you will still have loosing trades but placing your stop loss correctly will definitely improove your trading results.Profit targetSame story goes for determining profit targets. Analyze your charts! Is it a range trading market or is it a trending market? In a range trading market if you are short you should place your target profit near support (a few pips before). If you're in a trending market use leading indicators like fibonacci extension theory and pivot points theory.Fibonacci extensionsFibonacci extensions are used to predict where the market will go after a retracement assuming it continues in its original direction. The dipper the market retraces the smaller the extension will be.The theory says that a 38.2% retracement predicts 161.8% and beyond extension, a 50% retracemnts predicts 138.2% to 161.8% extension, a 61.8% retracement predicts 121.4% to 138.2% extension and finally a 78.6% retracement predicts 100% to 121.4% extension. If all these make your head spin the example bellow will clarify everything.Calculation of pivot pointsPP =(HIGH + LOW + CLOSE)/3S1 =(2*PP) - HIGHS2 = PP - RANGES3 = S2 - RANGER1 = (2*PP) - LOWR2 = PP + RANGER3 = R2 + RANGEM-lines (midpoints between support and resistance pivots)M4 is the middle of R2 and R1M3 is the middle of PP and R1M2 is the middle of PP and S1M1 is the middle of S2 and S1Pivot points can also be used to predict an extension after a rejection near a pivot level.S1 rejection points to R1 extensionM1 points to M3M2 points to M4Find a confluence between these 2 theories and there's you're profit target.I've learned all about these target extension theories from Wayne McDonell. You can visit his website here. I also recommend you his book "The FX Bootcamp Guide to Strategic and Tactical Forex Trading" - best forex book i've ever read.My first forex tips lesson ends with this must see educative video from Wayne McDonell.

Deciding when to exit a trade is probably even more important than finding an appropriate entry point. Emotions can influence in a negative way your decision to exit a trade because sometimes instead of exiting a trade for a small loss you start changing your stop loss orders to let the trade run hoping price will revert and get you to break even or maybe even in profit zone.Sometimes you may get lucky and turn a losing trade into a profitable trade but this is the worst thing that could happen to you because you will develope a "skill" that in the end will be devastating for your balance.On the other hand you may exit your profitable trades to soon fearing that your pips will vanish.This is where Trailing Stop comes into picture. Many forex traders are using trailing stops to exit their trades because if used correctly can improove your overall forex performance. A trailling stop is a stop loss order in which the stop loss is placed at a fixed number of pips bellow the market price so the stop loss changes with the price. Take for example a long trade. If the price rises the stop loss rises accordingly but if the price is falling the stop loss doesn't move.The advantage of this technique is that you are putting a limit on your losses without limiting your gains. Be carefull when you choose your forex broker because not all forex platforms allow automated trailing stop losses. Of course you can allways trail your stop loss manually according to a rule you set but this is not very productive and requires monitoring your charts for long periods of time if you are an intraday trader.Position traders or long term forex traders usually trail their stop loss manually. One trader for example can adjust his stop loss on a long trade below last 3 days low. This can keep you in a trade for a long time and get you the most of that move.Parabolic SAR(Stop and Reverse) is a great indicator to trail your stop loss. Developed by J. Welles Wilder this indicator works best in trending markets.

This forex tip is actually more of a skill that you will learn to develop if you trade long enough.One of the reasons i love forex trading so much is that this market rewards patient traders. Did you just missed a breakout? Are you watching that strong move thinking how many pips you could have made? Don't worry, forex trading almost allways gives you a second chance. Price tends to revisit old resistance points that once broken will act as support.There's your second chance to enter the trade. It's a perfect entry because other traders who missed the move will join you and traders who caught the first move will probably reenter to ride the trend again. The risk/reward ratio is great because your stop loss will be just bellow the support and your target should be above the first high established after the breakout.Here's a recent example of a trade i made on GBP/USD.

"Never risk more than 2%" on any forex trade - it's an advice you will hear from many professional traders. Trust me, they know what they are talking about. Why is it so important to follow this rule? Successful forex traders have high winning ratios(70% or more), so why don't they risk more? Maybe 5%!Let's examine the roulette game. There's a 50/50 chance for either black or red. So you may think that out of 10 events you could expect 5 red and 5 black. You couldn't be wronger. I've personally seen 24 red numbers in a row. I couldn't believe my eyes but the casino employees weren't surprised at all and when i talked to one of them he told me he saw streaks like this many times and that he remembers a streak that went over 35. So my point is that even with a high winning ratio system you can still experience a large drawdown on your account if you don't respect the "2% rule".Loosing streaks happen to successful forex traders too, you can't avoid that, the difference between you and them is that they don't get emotional when this happens because they never risk more than 2%. Not getting emotional helps them steak to their trading rules and survive the loosing streak.I guarantee you that if you follow this rule you will improove your trading results. Not risking your shirt on a trade keeps you cool and concentrated on the market making the right decisions. PS1: Don't lie to yourself by bending the rule thinking you could trade multiple pairs at the same time. If you are in a long EUR/USD trade risking 2% that's it. You can't buy GBP/USD and pretend it's another trade. EUR/USD and GBP/USD have a 95% correlation ratio so it's like risking 4% on EUR/USD.PS2: Never ever violate this rule even if you are 100% certain that you have a great trade that you couldn't possible loose in a million years. As John Maynard Keynes used to say: "the market can stay irrational far longer that you can remain solvent” Forex traders are not gamblers so don't put all your eggs in one basket!

This is a simple and short tip. Keep your charts clean! You don't need tens of moving averages, oscilators and god knows what other indicators. The majority of indicators are lagging indicators so they don't tell you anything you can't see yourself from price action. If you insist on using a lot of indicators at least open a second chart that you keep clean so you can watch price action alone. Keep it simple stupid because in forex sometimes less is more.Happy pipping!