In order to find a good value for a disaster stoploss, go back in time and see what is the drawdown tipping point above which most trades end up losing. Here the net result of our trade was – 10 pips but our MAE (Maximum Adverse Excursion) was 37 pips (1.0050 – 1.0013). After you enter, the Aussie goes south, trades all the way down to a low of 1.0013 before retracing and closing the bar giving us an exit at 1.0040. Let’s say that you go long the AUD/USD at 1.0050. The MAE shows the maximum drawdown experienced during the life of trade. A good way to find a good value for the stop is to go back in time for your chosen trading system and explore what is known as the MAE (Maximum Adverse Excursion). How big of a disaster stoploss you use is up to you. Because waiting for an EMA cross to occur and trading without a stoploss in not a good idea, most traders will place a ‘’disaster stoploss’’ on their trade ‘’just in case’’. Again there is a difference between those that wait for the close of the bar and those that prefer to get out right away. If we’re long, we would wait for the 10 EMA to cross back below the 21 EMA and we would exit our trade when that happens. The stoploss for this system is usually a crossover in the opposite direction with a disaster stoploss placed ‘’just in case’’.
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