Stop Loss Setting: Stop Loss Percentage Calculator - How to Calculate Stop Loss
The most important question about setting your forex stop loss order is how close or how far the stop loss order should be set from the forex price where you entered the position. Where you set this stop loss order depends on several factors:
Since there are no forex rules set in stone as to where you should place your stop loss order, we follow general guidelines used by traders to help them calculate where to place this stop loss order correctly.
Some of the general guidelines used to set forex stop loss orders are:
1. Percent Risk Per Forex Trade - How much a trader is willing to lose on a single forex trade. The general trader rule is that a trader should never lose more than 2 percent of the total trading account capital on any single forex trade.
2. Forex Market Volatility - this refers to the daily price range of forex price movement. If a forex price movement of a forex instrument routinely moves up and down in a range of 50 pips or more over the course of the day, then you cannot set a tight forex stop loss order. If you do, you may be taken out of the open forex trade position by the normal forex market volatility.
3. Forex Risk to Reward ratio - risk reward ratio this is the measure of potential reward to risk. If the forex market conditions are favorable then it is possible to comfortably give your forex trade more room when setting stop loss orders. However, if the forex market is too choppy it then becomes too risky to trade forex without a tight stop loss order then do not make the trade at all. The risk to reward ratio is not in your favor and even setting a tight stop loss will not guarantee profitable results. It would be wiser to look for a better forex trading to trade at another time.
4. Forex Position Size - if the forex position size traded is too big then even the smallest decimal forex price movement will be fairly big in risk percentage terms. This means that as a trader you have to set a tight stop loss order which may be taken out more easily by the market. In most cases it's better to adjust to a smaller forex position size in order to give your forex trade more space for fluctuation, by setting a reasonable stop loss while at the same time reducing the risk percent per trade.
5. Forex Trading Capital - If your forex account is undercapitalized then you will not be able to set your stop loss orders accordingly, because you will have a large amount of your forex capital invested in a single forex trade position which will force you to set tight stop losses. If this is the case, you should start thinking seriously about whether you have enough trading forex capital to trade the forex market in the first place.
6. Forex Market Trend Conditions - If the forex market is trending upwards, a tight stop loss order might not be necessary. If on the other hand the forex market trend is range bound and has no clear direction then you should use a tight forex stop loss order or not trade at all.
7. Forex Chart Time Frame - the bigger the forex chart time frame you trade, the bigger the stop loss level should be. If you were a scalper forex trader then your stop loss orders would be set tighter than if you were a forex day trader or a forex swing trader. This is because if you are a forex swing trader and you determine the forex price will move up it does not make sense to set a very tight forex stop loss order because if the forex market swings a little your tight stop loss order will be hit.
The method of setting a forex stop loss order that you choose will greatly depend on what type of trader you are. The Method of how to set a stop loss order, that you choose should also follow the above guidelines, and as a trader you should apply these guideline to your Forex Trading Method.
