Originally posted at forexfactory on February 11, 2011:
Looks like the strategy explained, thanks a lot, grkfx. Can you give an example of the last paragraph about aggressive market orders? I just can’t imagine such a situation. If you know in advance where others will execute their market orders why don’t they just set their limit orders there now?
You never know for sure. You just try to put your stop in place, where it is just beyond the reach of the market. You try to put it in a place where by the time the market reaches there, it has gone through 2-3 different layers/phases of mispricings. If certain market participants think of it as a mispricing they may come and generate order flow, whether market orders or standing limit orders. You just place it at a place where certain market participants would be just salivated at the chance to get in through either market or limit orders.
So if your stop gets hit in the end it was a result of bad analysis/trade in the first place, or you got unlucky, or the market just barely came and touched your stop loss and then reversed.
I would not know if the stop placement should be 50 pips away, maybe you can get away with 25 pips depending on what the situation looks like and how the liquidity is distributed, and where the potential mispricings are, and where different market participants will come in to generate order flow.