Whenever Happy Pip goes swimming at the beach or the pool, she always wears her hot pink rubber ducky floaters.
Whenever she trades retracements, she uses stop loss points.
Pink rubber ducky floaters are life savers. Stop loss points are capital savers.
As we said before, reversals can happen at any time. Retracements can turn into reversals without warning.
This makes using trailing stops in trending markets very important.
With trailing stop loss points, you can effectively prevent yourself from exiting a position too early during a retracement and exit a reversal in a pinch.
Conclusion
You don’t have to be shot down by the “Smooth Retracement”. You don’t have to lose all those pips.
And you most certainly don’t need to wear pink arm floaties (although if pink’s your favorite color, it’s okay – we don’t judge).
Just know how to distinguish retracements from reversals.
This is part of growing up as a trader. Having the ability to do so will effectively reduce your losses and prevent winners from turning into losers.
With lots of practice and experience, you’ll find yourself being able to trade accordingly to retracements and exit with a profit more times than not.
May we also suggest further reading on this topic?
These forum threads might be able to help you out:
- How do I know if a trend is losing strength?
- Best indicator for gauging the strength of any current trend
- Trend channels and price action
