Trend, support and resistance
What you learn in 3 minutesYou learn to mark two or three prices where EUR/USD turned before, and to read those levels as places where orders sit, not as rules. On one standard lot, one pip of EUR/USD is 10 units of the quote currency, so a 30 pip stop is a real money decision you can size before you enter. That is the difference between a plan and a guess.
Three touches, a fourth touch and a 30 pip stop
| Step | Amount | Note |
|---|---|---|
| Instrument and price | EUR/USD at 1.0850 | the level used throughout this lesson |
| Support level | 1.0850 | price turned up here three times in the past |
| Distance from entry to stop | 30 pips | entry near 1.0880, stop below the level at 1.0850 |
| Pip value, one standard lot | 10 units of the quote currency | 100,000 x 0.0001 |
| Stop cost in quote currency | 300 units | 30 pips x 10 units per pip |
| Converted at the current rate | KSh 38,700 | 300 x 129.00, the rate varies by broker and by the hour |
Your broker may round the conversion rate, charge a spread on entry and exit, and add commission or swap. The KSh 38,700 is the raw pip cost before those items, so the amount that leaves your account can be larger.
The mistake people make here
The common mistake is to treat a level as a promise: price touched 1.0850 three times, so it must hold on the fourth. It does not have to hold. Levels are only places where orders tend to sit, and a fourth touch can break through when the buyers there are exhausted. Instead of assuming the level will hold, decide in advance where you are wrong, place the stop beyond that point, and size the position so the loss is an amount you already accepted. If the level breaks, the stop does its job and you keep the rest of your account.Check yourself
You enter EUR/USD at 1.0880 with a stop at 1.0850 on 0.10 lots. How many pips is the stop, and what is the cost in units of the quote currency?
The stop is 30 pips (1.0880 minus 1.0850). One pip on one standard lot is 10 units, so on 0.10 lots one pip is 1 unit. 30 pips x 1 unit = 30 units of the quote currency.
If the conversion rate is 129.00 KSh per unit of the quote currency, what is that 30 unit cost in KSh?
30 units x 129.00 = KSh 3,870. This is before spread, commission or swap, which the broker may add.