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Forex Stop Loss Placement - Forex Stop Loss Strategy Day Trading

FX Stop Loss Order Market Order - Forex Stop Loss

Stop Loss is a type of order which is placed after opening a trade transaction that is meant to cut losses if the market moves against you in the opposite market direction.

Stop Loss is a pre determined point of getting out of a losing trade & it is meant to control losses in forex.

A fx stop loss is an order placed with your broker that will mechanically/automatically close your open trade position when price of your open trade order reaches a pre-determined price. When set level is attained, your open trade is liquidated.

These orders are meant to minimize the sum of money that a trader can lose: by exiting the trade transaction if a specific price that's against the trade transaction position is attained.

For example, one might open a buy trade and put a stoploss order of 20 pips, if the price moves against the trader by 20 pips the stop loss order will be filled and the trade transaction will be closed thereby limiting the loss to 20 points (pips) - Forex Stop Loss Strategy PDF.

Regardless of what you might be told by other traders, there's no question about it that whether if these stop losses should or should not be used - forex stop losses should always be used.

One of more difficult things in Forex trading is setting these stop losses - Forex Stop Loss Order Placement - Forex Stop Loss Strategy Day Trading. Put the stop loss order too close to your entry price and you're liable to exit the trade transaction due to and because of random price volatility. Add the stop loss too far away and if you're on the wrong side of the market trend, then a small loss could turn into a big loss.

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

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

Experienced traders always use stop losses as they're an important part of the discipline required to succeed in forex because stop losses can limit a small loss from becoming a big loss. What's more, by diligently setting these stop loss orders whenever you enter a trade position, you end up making this important decision at point in time when you're most objective about what is really happening with the market, this is because most objective trading analysis is carried out prior to opening a trade transaction. After entering the market a trader will tend to analyze the currency market differently because they now are biased towards one side of the market, the direction of their trading analysis - Forex Stop Loss Strategy Day Trading.

Unexpected economic news can come out of the blue & dramatically affect the price: this is why it is so crucial to have a stop loss set for your open trade. It's best to cut losses early when a trade transaction is going against you, it's better to cut your trading losses immediately rather than waiting for the loss to become a big one. Again, if you set your stoploss orders when you are entering a trade, then that is when you're most objective as a trader - Forex Stop Loss Placement.

Forex Stop Loss Placement - FX Stop Loss Order Strategy Day Trading

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

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

If you opened a trade position 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 position size of trade that you have opened - Forex Stop Loss Market Order - Forex Stop Loss Order. The topic of forex risk management is a wide topic and it's discussed under learn money management topics.

Factors to Consider When Setting Stop Loss - Forex Stop Loss Order

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

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

Some of general fx stop loss order setting guide-lines used are:

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

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

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

4. Forex Trade Position Size - if trade size opened is too big then even the smallest decimal price point move will be fairly large in risk % terms. This means that you have to set a tight stop loss for your trade which may be taken out more easily. In most cases it's better to adjust to a smaller trade size so that to give your trade more space for fluctuation, by setting a practical stoploss order level for this stop loss order while at the same time reducing/decreasing the risk for the trade position.

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

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

7. Forex Timeframe - the bigger and larger the chart time frame you use, the bigger and larger the stop loss level should be. If you were a scalper your stoploss orders would be narrower than if you were a day trader or a swing trader. This is because if you're using longer chart time frames & you determine the price will be move upwards it doesn't make sense to set a very tight stop loss because if the price swings a little, your open order will be hit.

FX Stop Loss Placement - Forex Stop Loss Strategy Intra-day Trading

The method of setting stop loss orders that you choose will significantly/greatly depend on what type of trader you are. The most oftenly used strategy to determine where to set stoploss orders is - resistance & support areas. These support & resistance levels give good points for setting these stoploss orders as they're most reliable areas to set stop loss orders, because the support and resistance levels will not be hit many times.

FX Stop Loss Order Market Order - Forex Stop Loss

The course of how to set these stop losses that you as a trader choose should also follow the stop loss order setting guidelines above, even if not all these rules apply to your strategy try to implement the rules which will apply to your strategy depending on what type of trader you are.

Forex Stop Loss Order Placement - Forex Stop Loss Strategy Day Trading - Forex Stop Loss Strategy Tutorial - Forex Stop Loss Market Order - Forex Stop Loss Order

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