Techniques of Setting Stop Loss In Forex

Traders using a trade system must have mathematical calculations that reveal where this stop loss order must be placed.

A trader can also set a stop loss order in accordance to the indicators that are used by traders to set these stop loss orders. Certain indicators use math equations to calculate where the stop loss order should be set so as to provide an optimal exit point for open trades. These forex indicators can be used as the basis for setting these stop loss orders.

Other traders also place these stop loss orders according to a predetermined risk : reward ratio. This method of setting depends upon certain mathematical equations. For example a ratio of 50 pips stop loss can be used by a trader if the trade transaction has potential to make 100 pips in profit: this is a risk:reward ratio of 2:1

Others just use a predetermined percentage of their total account balance to calculate where to set these stop loss orders.

To set a stop loss order it is best to use one of the following strategies:

1. Percentage of equity balance

This is based on the percent of account balance that the trader is willing to risk on a single forex trade.

If one is willing to risk 2 % of their account balance then the FX trader determines how far he will set the stop loss order level based on the trade position size which he has bought or sold.

Example:

If a trader has got a $100,000 account and is willing to risk 2 %

If the trader buys 1 lot
1 pip = $10 dollars
Then setting stop loss order at 2%
2 % is $2,000
2000 /10 = 200 pips
Stop Loss = 200 pips

If the trader buys 2 contracts
1 pip = $20
Then setting stop loss order at 2 %
2 % is $2,000 dollars
2000 /20 = 100 pips
Stop loss = 100 pips

If the trader buys 4 contracts
1 pip = $40
Then setting stop loss at 2 %
2 % is $2,000 dollars
2000 /40 = 50 pips
Stop loss = 50 pips

2. Setting Stop Loss using Support & Resistance Areas

Another way of setting stop loss orders is to use supports and resistance levels that form on the forex charts.

Given that stop loss orders tend to congregate at these support & resistance levels key points, when one of these levels is touched by the forex price, many other stop losses are set off, like dominos. Stop loss orders tend to crowd just above/below the resistance/support levels, respectively.

A resistance/support zone should act like a barrier for price movement and forex price should not move beyond these points, this is why these support & resistance levels are used to set stop losses, if this barrier is breached and broken the forex price movement can move towards the in the opposite trend trend trend trend trend direction of original trade trend, but if this barriers (support & resistance zones) are not broken the price will continue going in the intended market direction.

Stop Loss Level Order Setting using a Resistance Level - Setting Stop Loss Orders using Resistance Levels

Stop Loss Level Setting Using a Resistance Line - Setting Forex Stop Loss Using Resistance Areas

Putting forex stop loss order - Stop Loss Order Set above the Resistance Level

Stop Loss Level Order Setting using a Support Level - Setting Stop Loss Orders using Support Areas

Stop Loss Level Using a Support Line - Setting Forex Stop Loss Using Support Levels

Putting forex stop loss order - Stop Loss order Set below the Support Level

3. Forex Trend-Lines

A 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 earning profits while at the same time set this stop loss order which will lock his profit once the trend-line is broken.

Stop Loss Level Set Below the Forex Trend Line - How to Set Stop Loss Using Forex Trendlines

Putting order below the trend line - How to Stop Loss Using Forex Trend Lines

Examples of where to set this stop loss order using forex trend lines.

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