Forex Managed Accounts: Better to hide the stop loss orders

All forex trading accounts managed by professionals are most likely to use stop losses to protect against an adverse movement in rates, but experience has shown that one is better off keeping the stop loss level confidential, rather than put it on display in the market.

There is no doubt that the only way to trade the forex market is to use stop loss or when the position is making money, to use trailing stops to lock in gains if the market suddenly turns lower. The issue that we raise today is if the stop loss order should be kept confidential or placed in the market.

There is no magic formula as to where your trailing stop should be when you are trading forex or managing a forex account. It could be 1% or higher from current levels depending on your budget. Forex account traders who trade on the overall trend may be in a position to afford a bigger trailing stop of say 2% or 3%. Forex account Day traders who are going in and out of positions may however have tighter stops.

Forex account investors not accustomed to trailing stops may however be frustrated when their stops are triggered and then the market continues higher. This is the process where the market does a retracement or correction and then resumes its march. For this reason, the trailing stop should not be very close to current prices and should be placed below strategic levels.

One explanation why stops are triggered and then the market heads in the direction it is supposed to go is because the stops are known in the market and the major players usually trigger them to improve their pricing.

If you trade 1 lot, you will probably laugh at this suggestion on the assumption that nobody cares where your stop loss is on that 1 lot position. But imagine those trading in 1000 lots or more. When those orders are placed when a position is opened, the order to stop a particular position is either placed with another broker or kept by the market maker.

As the orders pile up, and they usually are at specific levels, such as 10 pips below or above the previous day’s high or low, or 20 pips above or below a particular moving average or chart support or resistance level, then you can rest assured that other forex traders are also placing their stops at close or near those particular levels.

As the orders pile up and becoming larger and larger, those orders will be passed along to bigger players to cover. You guessed it right, the big players now have an unfair advantage since they know exactly where the market is selling or buying. All they need to do is force the price to just above or below specific levels to trigger the stops and 9 out of 10 times, take prices back to where they were before the move happened, causing frustration and losses for small forex traders and big gains for their forex trading rooms.

My suggestion is to always trade with stops, but if possible, keep the level for yourself when trading forex positions, unless that is the position will be left open overnight and obviously you will need to pass it along to your forex broker.