When you're taking a trade on EUR/AUD with a 150-pip profit target and a 40-pip stop loss, you're aiming for a trade setup that has a reward-to-risk ratio of 3.75:1. This means for every pip you risk (40 pips), you're potentially earning 3.75 times that amount (150 pips).
Here's a breakdown of the thought process:
1. Setting the Profit Target (150 Pips)
The 150-pip target likely corresponds to a significant level on the chart, such as a previous support or resistance zone, a Fibonacci extension level, or a major pivot point.
This target should be realistic based on the current volatility and historical price action of EUR/AUD.
Check for daily average range: If EUR/AUD tends to move around 100-150 pips per day, this makes the target more achievable within a reasonable time frame.
2. Defining the Stop Loss (40 Pips)
A 40-pip stop loss should ideally be placed below/above a significant technical level, such as:
Recent swing highs/lows.
A moving average.
A key Fibonacci retracement level.
The stop should protect you from a potential market reversal but not be so tight that normal market noise would trigger it.
It’s important to make sure that placing the stop here still keeps you below a key invalidation level, meaning if the stop is hit, your initial analysis was incorrect.
Here's a breakdown of the thought process:
1. Setting the Profit Target (150 Pips)
The 150-pip target likely corresponds to a significant level on the chart, such as a previous support or resistance zone, a Fibonacci extension level, or a major pivot point.
This target should be realistic based on the current volatility and historical price action of EUR/AUD.
Check for daily average range: If EUR/AUD tends to move around 100-150 pips per day, this makes the target more achievable within a reasonable time frame.
2. Defining the Stop Loss (40 Pips)
A 40-pip stop loss should ideally be placed below/above a significant technical level, such as:
Recent swing highs/lows.
A moving average.
A key Fibonacci retracement level.
The stop should protect you from a potential market reversal but not be so tight that normal market noise would trigger it.
It’s important to make sure that placing the stop here still keeps you below a key invalidation level, meaning if the stop is hit, your initial analysis was incorrect.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.