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Student’s Question:
Here's a doji from the EUR/GBP pair back on October 1. The idea is to get in just above the doji and place a stop 10-15 pips higher right? Is it smarter to go ahead and place a limit so you can automatically take a win if the price drops enough or try and watch for an out indicator? I can see where it would be too enticing to sit and watch to see how much you gain if the play pays off.
Power Course Instructor’s Response:
Ideally, we want to determine the direction that the pair is trading on the Daily chart. Once that is determined, we want to look for trading entry opportunities in that direction as those will be the higher probability trades.
A doji indicates the potential for price action to change direction. Since the overall trend on the EURGBP pair is bullish (see the chart below) we would look for entries to the upside.
It is preferable to put both a stop and a limit on a trade so as to be able to determine a risk/reward ratio of 1:2. Also, for the reasons you mentioned, it is best for most traders, especially new ones, to have a target at which point they know they will exit.
I would encourage you not to expand the chart very much as it does not provide a good overview of how the pair is moving in its trading cycle. The chart you posted is an expanded version of the one posted below. A trader can tell at a glance which chart provides the most data about the pair.
A good rule of thumb is to have at the very least 50 candles on a chart.
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