Best Stop Loss Strategy - Best Stop Loss Strategy for Forex

Forex StopLoss Examples - Forex StopLoss Order - Forex Stop Loss Calculator

Stop Loss is a type of order that is placed after opening a trade that's designed to minimize losses if the market trend moves against you.

Stop Loss is a predetermined point of exiting a losing trade and it is meant to control losses in forex.

A stoploss is an order placed with your broker which will automatically close your open trade order when the price of your open trade order reaches a predetermined price. When set level is reached, your open trade is closed out.

These orders are designed to cap the amount of money which trader can lose: by exiting the trade order if a specific price that's against the trade is reached.

For example, a trader may open a buy trade & put a stop loss of 20 pips, if the price moves against the trader by 20 pips the stop loss order will be filled and the trade will be liquidated thereby limiting the loss to 20 points (pips) - Setting Forex Stop Loss Techniques.

Regardless of what you may be told by other traders, there no question about whether these stoploss orders should or should not be used - stoploss orders should always be used.

One of the most challenging things in Forex is setting these stop loss orders - Best Stop Loss Strategy - Best Stop Loss Strategy for Forex Trading. Put the stop loss order too close to your entry price and you are liable to exit the trade due to random volatility. Place the stop loss too far away and if you're on wrong side of the market trend, then a small loss could turn into a big loss.

Skeptics will point out several disadvantages of these stoploss orders: that by placing them you're guaranteeing that should your open trade position move in wrong direction, you will end up selling at lower prices, not higher.

The critics also will argue that in setting forex stop loss orders you are vulnerable to exit a trade order just before the market moves in your favor. Most traders have had the experience of setting a these stoploss orders & then seeing the price retrace to that stop loss level, or just few points below it, & then go in direction of their original market trend analysis. What might have been a profitable trade position instead turns into a loss.

Professional traders always use stop loss orders as these orders are an important part of the discipline that's required to succeed in forex because stop loss orders can prevent a small loss from becoming a large loss. What's more, by ardently placing these stop loss orders whenever you enter a trade position, you end up making this important decision at point in time when you are most objective about what's really happening with market, this is because most objective forex analysis is done before opening a trade order. After entering the market a trader will tend to analyze the market differently because they now are biased toward one side of the market, the direction of their forex analysis - Best Stop Loss Strategy for Forex Trading.

Unexpected forex economic news reports can come out of the blue and dramatically affect the price: this is why it is so important to have a stop loss order set for your open trade. It is best to cut losses early when a trade position is moving against you, it is better to cut your forex losses immediately rather than waiting for loss to become a big one. Again, if you set your stop loss orders when you are entering a trade, then that is when you are most objective as a trader - Best Stop Loss Strategy.

Best Stop Loss Strategy - Best Stop Loss Strategy for FX Trading

A key forex question is exactly where to set this stop loss order. In other words, how far should you place this stop loss below your purchase price? Many traders will tell you to set predetermined - maximum acceptable loss per trade, an amount based on your account equity balance rather than use forex indicators for calculating where to place the stop loss order - Best Stop Loss Strategy for Forex Trading.

Professional money managers advice that you shouldn't lose more than 2 % of your account equity on any one single trade order. If you have $10,000 dollars in forex capital, then that would mean that the maximum loss you should set for any one trade order is $200 - Best Stop Loss Strategy.

If you open a trade then that would mean you would limit your risk to no more than $200 for that particular trade. In which case you would set your stop loss order at 200 or equivalent number of pips based on your forex position size of the trade that you've opened - Forex StopLoss Example - Forex StopLoss Order - Forex Stop Loss Calculator. The topic of forex risk management is a wide topic and it is discussed under learn forex equity management topics.

• Forex Equity Management Introduction - The Parameters to Consider When Setting StopLoss Orders
• Forex Equity Management Methods - Forex StopLoss Example - Forex StopLoss Order - Forex Stop Loss Calculator

The Parameters to Consider When Setting StopLoss Orders - Forex Stop Loss Order Example

Most important question is how close or how far this stoploss order should be set from the price where you entered the trade position. Where you set the stop loss order will depend on several factors:

Since there aren't any guidelines set in stone as to where you should place these stoploss orders on a chart, we follow general stop loss order setting guide-lines used to help place these forex stop loss orders correctly.

Some of the general stop loss order setting rules used are:

1. Risk Percentage - How much is one willing to lose on a single trade order. The general stop loss order setting rule is that a trader should never lose more than 2 percent of the total account capital on any one single trade order.

2. Market Volatility - market volatility refers to the daily price range movement of the currency pair that you are trading. If a ++forexforex pair routinely moves up and down in a range of 50 pips or more over course of the day, then you cannot set tight stop loss when you open a trade. If you do, you'll be taken out of the trade position by the normal market volatility.

3. Forex Trading Risk to Reward Ratio - this is the measure of potential reward to risk calculated before opening a trade. If the market conditions are favorable then it is possible to comfortably give your trade more room. However, if the market is too range bound it then becomes risky to open a trade order without a tight stop loss - then don't make the trade at all. The forex risk to reward ratio is not in your favor & even setting tight stoploss orders won't guarantee profitable results. It would be wiser to search for a better trade position to next time.

4. Trade Position Size - if trade size transacted is too large then even the minimum decimal price movement will be fairly big in risk percent terms. This means that you have to set a tight stop loss for your trade which might be taken out more easily. In most cases it's better to adjust to a smaller trade position size so as to give your trade more space for price volatility movement, by setting a reasonable forex stop loss level for this stop loss order while at same time reducing the risk for the trade.

5. Account Equity - If your account is under-capitalized then you will not be able to set your forex stop loss orders accordingly, because you'll have a big amount of money invested in a single trade position which will force you to set very tight stop loss orders. If this is case, you should think seriously about whether you have enough capital to trade FX in the first place.

6. Market Trend Conditions - If the price is trending upwards, a tight stop might not be necessary. If on the other hand the price is choppy and has no clear market trend direction then you should use tight stoploss order or not open any trades at all.

7. Chart Time-Frame - the bigger the timeframe you use, the bigger the stoploss level should be. If you were a scalper trader your forex stoploss orders would be tighter than if you were a day trader or a swing trader. This is because if you are using longer chart timeframes and you figure out the price will be move upwards it doesn't make any sense to put a very tight stop loss because if the price swings just a little, your open order will be hit.

Best Stop Loss Strategy - Best Stop Loss Strategy for FX Trading

The method of setting forex stop loss orders that you select will mostly depend on what type of trader you are. Most oftenly used method to determine where to set stop loss orders is - resistance & support levels. These forex support & resistance areas give good points for setting these stoploss orders as they are the most reliable zones to set stoploss orders, because the support & resistance levels won't be hit many times.

Forex StopLoss Example - Forex StopLoss Order - Forex Stop Loss Calculator

The technique of how to set these forex stop loss orders that you choose should also follow the stop loss setting guidelines above, even if not all these guidelines apply to your forex strategy try to implement the guide-lines that will apply to your forex strategy depending on what type of trader you're.

Best Stop Loss Strategy - Best Stop Loss Strategy for Forex Trading - Setting Forex Stop Loss Techniques - Forex StopLoss Example - Forex StopLoss Order - Forex Stop Loss Calculator