How Do You Use Stop Loss Forex Orders in Trading?
How Do You Use Stop Loss Forex Orders in Trading?
How Do You select you stop loss level the target stop loss should be based on various strategies depending on your type of forex trading method.
The 3 techniques of choosing stop loss levels are:
Strategies & Methods of Setting Stop Loss Orders In Forex
Forex traders using a Forex trading system must have mathematical calculations that reveal where the order must be placed.
A trader can also set a stop-loss order according to the technical forex indicators used to set these orders. Certain technical forex indicators use mathematical equations to calculate where the stop loss order should be set so as to provide an optimal exit point. These forex indicators can be used as the basis for setting these orders.
Forex traders also place these orders according to a predetermined risk to reward ratio. This technique of setting is dependent upon certain math equations. For examples a ratio of 50 pips stop-loss can be used by a trader if the forex trade has potential to make 100 pips in trading profit: this is a risk : reward ratio of 2:1
Other traders just use a predetermined percentage of their total forex trading account balance.
To set a stop loss it is better to use one of the following methods:
1. Percent of Forex Trading account balance
This stop loss setting method is based on percent of account balance that the FX trader is willing to risk when trading.
If a trader is willing to risk 2% of forex account balance then the trader determines how far he will set the stop loss order level based on the trade position size which he has bought or sold.
2. Setting Stop Loss Forex Orders using Support and Resistance Levels
Another way of setting stop loss orders is to use supports and resistance levels, on the trading charts.
Given that stoploss orders tend to congregate at key points, when one of these levels is touched by forex price, other forex orders are set off. Stop loss orders tend to accumulate just above or below the resistance or support levels, respectively.
A resistance or a support level should act like a barrier for forex price movement, this is why they are used to set forex stop losses, if this barrier is broken the forex price movement can go toward the opposite direction of the original forex trade, but if this barriers (support & resistance levels) are not broken the forex price will continue heading in the intended direction.
Forex Stop Loss Level Setting using Resistance Level
Setting stop loss order above resistance level
Forex Stop Loss Level using Support Level
Setting forex stop loss order below the Support Level
3. Forex Trading Trend-Lines
A Forex trendline can be used to set stop losses where the stop-loss order is set just below the trend line. As long as the trend line holds the trader will be able to continue making trading profits while at the same time set this forex stop loss order which will lock his profit once the trendline is broken.
Setting stop loss order below trendline
Examples of where to set this stop loss order using Forex trend lines.
How Do You Use Stop Loss Forex Trading Orders in Forex?
