Forex Stop Loss Placement - Forex Stop Loss Strategy Day Trading

FX Stop Loss Market Order - Forex Stop Loss Order

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 opposite direction.

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

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

These orders are meant to restrain the sum of money that trader can lose: by exiting the trade if a specific price that is against the trade is reached.

For example, one might open a buy 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 trade will be liquidated 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 whether these stop loss orders 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 Placement - Forex Stop Loss Strategy Day Trading. Put the stop loss order too close to your entry price and you are liable to exit the trade due to random market volatility. Place the stop loss too far away & if you're on the wrong side of the market trend, then a small loss could turn into a large loss.

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

The critics will also argue that in setting stop losses you are vulnerable to exit a trade 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 market trend analysis. What might have been a profitable trading instead turns into a loss.

Experienced traders always use stop losses as they're an important part of discipline required to succeed in forex because stop losses can prevent a small loss from becoming a large 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's really happening with the market, this is because most objective technical analysis is done before opening a trade. After entering the market an investor will tend to analyze the market differently because they now have a bias toward one side of market, the direction of their analysis - Forex Stop Loss Strategy Day Trading.

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

Forex Stop Loss Placement - FX Stop Loss Strategy Day Trading

A key forex question is precisely where to place this stoploss order. In other words, how far should you place this stoploss below your purchase price? Many traders will tell you to set a predetermined - maximum acceptable loss per trade, an amount based on your account 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 trading account equity on any one single trade. If you have $10,000 in capital, then that would mean that the maximum loss you should set for any one trade is $200 - Forex Stop Loss Placement.

If you opened 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 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 & it's discussed under learn money management topics.

• FX Equity Management Introduction - Factors to Consider When Setting StopLoss Orders
• Forex Equity Management Methods - Forex Stop Loss Market Order - Forex Stop Loss Order

Factors to Consider When Setting StopLoss - Forex Stop Loss Order

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

Since there are not 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 guidelines used to help place these stop losses correctly.

Some of general fx stop loss order setting guidelines used are:

1. Risk Percent - How much is one willing to lose on one trade. The general fx 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.

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

3. FX 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 choppy it then becomes very risky to open a trade transaction without a tight stop loss - then do not make the trade at all. The risk to 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 next time.

4. Forex Trade Position Size - if trade size opened is too big then even the smallest decimal price movement will be fairly large in risk percent 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 as to give your trade more space for fluctuation, by setting a reasonable stop loss level for this stop loss order while at the same time reducing the risk for the trade.

5. FX Account Equity - If your trading 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 in a single trade position which will force you to set very tight stop losses. If this is case, you should think seriously about whether you have enough capital to trade Forex in the first place.

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

7. Forex Time Frame - the bigger the chart time-frame you use, the bigger the stop loss level should be. If you were a scalper trader your 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 determine the price will be move upwards it does not 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 Day Trading

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

FX Stop Loss Market Order - Forex Stop Loss Order

The guide of how to set these stop losses that you 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 Placement - Forex Stop Loss Strategy Day Trading - Forex Stop Loss Strategy PDF - Forex Stop Loss Market Order - Forex Stop Loss Order