Mitigates risk and protects profits The primary function of setting stop loss orders is to limit risks and protect profits. It helps you manage money in your trading account as it allows you to only exit the trade when the limit is reached.
Minimal supervision of trades When you place a stop loss order, you enable the system to execute orders automatically. As there is a cap to potential losses with some locked-in gains, you can take a break from the intense Forex trading environment and come back refreshed to make more ideal trades.
How to place a stop loss order Going long When you are buying a currency pair, consider placing the stop loss at a level that gets you out of the position if the Forex market turns against you. Place the stop loss order below a swing slow, the point where the prices fall and immediately bounce back. This is also called a support level.
It is ideal for you to trade at this level to minimise losses. The swing lows should be moving in the upward direction as you buy the currency pair. Going short When you sell a currency pair in the market, the ideal placement for a stop loss order is above the swing high.
A swing high occurs when the rising prices stop rising and immediately fall. This point is also known as the resistance level. The swing highs should be moving in the downward direction when you go short. Alternative points You do not always have to place your stop loss orders below the low swing or above the high swing.
Depending on your entry and exit strategy, you can also place your stop loss orders at an alternative price. For example, when the market is volatile, you can use the Average True Range indicator to see how much the market prices are changing in a day. You can then set up a stop loss order based on the volatility and place the order at a price outside of the fluctuations.
Limit your losses with stop-loss orders Stop loss orders are ideal if you want to avoid drastic price movements in the Forex market. They protect your profits and mitigate losses. At Blueberry Markets, we provide our traders tools to study market movements. To better understand the meaning of this term in Forex, read this example carefully. Now that you are somewhat familiar with stop-loss order and understand its meaning, we will introduce you several types of stop-loss order strategies in forex.
Introducing stop-loss strategies in forex You can use these few strategies in order to benefit from the loss limit order in forex. Fixed loss limit In the fixed loss limit order, traders can set a specific price for the limit loss and not touch it until the end of the trade.
Choosing a fixed loss limit is almost easy and you can specify a loss limit where the profit to loss ratio is Fixed loss limit based on indicators or indexes In this method, traders can determine the limit of loss from real market information using indicators.
For example, they determine the distance of the loss limit from the point of entry into the transaction based on the ATR index. Manual moving loss limit If the trader wants to have more control over his transactions despite setting the loss limit, he can specify the stop-loss limit according to the progress of the market. For example, when the market is in a downward trend, the trader places the loss limit in lower positions, and when the market finds an bullish trend, the loss limit is activated in the upward direction and the transaction ends.
Moving loss limit In fact, the moving loss limit makes it possible for traders to create moving loss limits as the market progresses, and in this way they can manage their money better. In this way, they can reduce the amount of risk to a great extent by shifting the loss limit in transactions and lose less. Moving loss limit with fixed steps The limit of moving losses has the ability to be ordered in such a way that they move by a certain amount every time. For example, the trader can set the limit of moving losses in such a way that in the direction of market movement, they should also be moved by 5 pips.
Is the loss limit in forex trading reliable? There are many people who have this question: is it necessary to activate the stop-loss limit in forex trading? And does this tool work properly and is it reliable? And when is the exit time? In response to this question, there are two different theories: Some traders believe that it is necessary to use a stop-loss limit order in transactions so that whenever the market does not move in the direction of your transaction, you can stop the loss and terminate the transaction by specifying the loss limit and get out of it.
Other traders believe that in order to avoid losses in trades, it is necessary to exit the trade before reaching the loss limit in order to incur less loss. These traders believe that the loss limit should be determined as a precaution and before that, the transaction should be ended.
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