You can’t just enter a trade based on Fib levels without having a clue where to exit.

Your account will just go up in flames and you will forever blame Fibonacci, cursing his name in Italian.

In this lesson, you’ll learn a couple of techniques to set your stops when you decide to use their trusty Fib levels.

These are simple ways to set your stop and the rationale behind each method.

Method #1: Place Stop Just Past Next Fib

The first method is to set your stop just past the next Fibonacci level.

If you were planning to enter at the 38.2% Fib level, then you would place your stop beyond the 50.0% level.

If you felt like the 50.0% level would hold, then you’d put your stop past the 61.8% level, and so on and so forth. Simple, right?

Let’s take another look at that 4-hour EUR/USD chart we showed you back in the Fibonacci retracement lesson.

If you had shorted at the 50.0%, you could have placed your stop loss order just past the 61.8% Fib level.

The reasoning behind this method of setting stops is that you believed that the 50.0% level would hold as a resistance point. Therefore, if the price were to rise beyond this point, it would invalidate your trade idea.

The problem with this method of setting stops is that it is entirely dependent on you having a perfect entry.

Setting a stop just past the next Fibonacci retracement level assumes that you are really confident that the support or resistance area will hold. And, as we pointed out earlier, using drawing tools isn’t an exact science.

The market might shoot up, hit your stop, and eventually go in your direction. This is usually when we’d go to a corner and start hitting our heads on the wall.

We’re just warning you that this might happen, sometimes a few times in a row, so make sure you limit your losses quickly and let your winners run with the trend.

It might be best if you use this type of stop placement method for short-term, intraday trades.