Best Stop Loss Forex Strategy - Best Stop Loss Strategy for Forex

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

Stop Loss Order is a type of order placed after opening a forex trade that is meant to cut losses if the forex market trend moves against you.

Stop Loss Order is a predetermined point of exiting a losing forex trade & it's meant to control losses in forex trading.

A stop loss order is an order placed with your forex broker that will automatically close your open forex trade order when the price of your open forex trade order reaches a predetermined price. When set level is reached, your open forex trade is liquidated.

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

For example, a trader might open a buy forex trade and 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 forex 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 forex traders, there is no question about whether these stoploss orders should or should not be used - stoploss orders should always be used.

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

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

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

Professional forex traders always use stop-loss orders as these orders are an important part of discipline required to succeed in forex trading because stop loss orders can prevent a small trading loss from becoming a large loss. What's more, by diligently setting these stop loss orders whenever you enter a forex trade position, you end up making this important decision at point in time when you are most objective about what's really happening with forex market, this is because the most objective forex technical analysis is done before opening a forex trade order. After entering the forex market a trader will tend to analyze the market differently because they have a bias 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 forex price: this is why it is so important to have a stop loss order set for your open forex trade. It is best to cut forex losses early when a forex trade position is going 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 forex trade, then that is when you are most objective as a trader - Best Stop Loss Forex Trading Strategy.

Best Stop Loss Forex Strategy - Best Stop Loss Strategy for Forex Trading

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

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

If you opened a forex trade then that would mean you would limit your risk to no more than $200 for that particular forex 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 forex trade that you've opened - Forex Stop Loss Order Example - Forex Stop-Loss Order - Forex Stop Loss Calculator. The topic of forex risk management is a wide topic & it is covered under learn forex money management topics.

• Forex Money Management Introduction - Factors to Consider When Setting Stop Loss Orders
• Forex Money Management Methods - Forex Stop Loss Order Example - Forex Stop-Loss Order - Forex Stop Loss Calculator

Factors 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 forex price where you entered the forex trade position. Where you set the stop loss order will depend on several factors:

Since there are no rules set in stone as to where you should place these stoploss orders on a forex 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 guidelines used are:

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

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

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

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

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

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

7. Forex Chart Time frame - the bigger the forex chart timeframe you use, the bigger the stoploss order level should be. If you were a scalper forex trader your forex stoploss orders would be tighter than if you were a forex day trader or a forex swing trader. This is because if you are using longer forex chart time-frames & you figure out the forex price will be move upwards it does not make sense to set a very tight stop because if the forex price swings a little your open forex order will be hit.

Best Stop Loss Forex Strategy - Best Stop Loss Strategy for Forex Trading

The method of setting forex stop loss orders that you select will greatly depend on what type of trader you are. Most oftenly used method to determine where to set forex 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 Stop Loss Order Example - Forex Stop-Loss Order - Forex Stop Loss Calculator

The technique of how to set these forex stop loss orders that you choose should also follow the forex stop loss order 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 are.

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