Trend, support and resistance
What you learn in 3 minutesThis lesson shows how the places where price turned before become the places where orders sit next, and what that costs you in naira. On EUR/USD around 1.0850, one pip on one standard lot is 10 units of the quote currency, converted at the current rate, so every level you watch has a price attached to it.
One level, three touches, and a stop at ₦48,600
| Step | Amount | Note |
|---|---|---|
| Instrument and level | EUR/USD support near 1.0850 | price turned up here three times on the chart |
| Fourth touch entry | 1.0852 | buy as price returns to the level |
| Stop distance | 30 pips | entry 1.0852 minus stop 1.0822, expressed in pips |
| Position size | 0.10 lots | one tenth of a standard lot |
| Value of one pip | ₦1,620 | 10 units of the quote currency on one standard lot, converted at the current rate, then divided by ten for 0.10 lots |
| Risk in naira | ₦48,600 | 30 pips x ₦1,620 per pip |
| Spread cost on entry | varies by broker | the spread is added to the entry price and is not fixed across brokers |
Your broker may round the pip value, quote a different conversion rate, widen the spread at busy times, or charge a commission on top. Check the contract specification before you size a position.
The mistake people make here
The common mistake is to treat a level as a promise and place a stop exactly on the line, or a few pips above it, because the line looks tidy. Price often moves slightly through a level before turning, so a stop sitting on the line is hit while the idea is still intact. Instead, place the stop beyond the level by a distance you have measured, then work out the naira cost of that distance at your position size. If the cost is more than you are willing to lose, reduce the position size rather than moving the stop closer.Check yourself
Price touches support at 1.0850 three times. You enter the fourth touch at 1.0852 with a stop at 1.0822 on 0.10 lots. One pip on one standard lot is 10 units of the quote currency, converted at the current rate to ₦1,620 per pip on 0.10 lots. What is the risk in naira?
Entry 1.0852 minus stop 1.0822 is 30 pips. 30 x ₦1,620 = ₦48,600.
If you halve the position to 0.05 lots, what happens to the risk on the same 30-pip stop?
One pip on 0.05 lots is ₦810. 30 x ₦810 = ₦24,300, which is half of ₦48,600.