Stop Loss Summary: Points To Remember When Putting Stop Loss Orders

The key to placing stop loss orders in Forex isn't to set too close or too far & not exactly on the support resistance levels.

A few pips(points) below the support or above the resistance regions is the best place to set these stop loss orders.

If you are going long (buying a currency pair), just look for a nearby support level which is below your entry point & set this stop loss order about 10 pips to 20 pips below that support level. The illustration revealed below show the support level where a trader can set up their stops just below the support level on a chart.

Support Level for Placing Stop Loss Level for Buy Trade - Forex Stop Loss Orders Setting

Support Level for Putting Stop Loss Level for Buy Trade

If you are going short (selling a currency pair), just look for a nearby resistance level that is above your entry point and set this stop loss order about 10 pips to 20 pips above that resistance level. The example illustration put on display below show the resistance level where a trader can set up their stops just above the resistance level on a chart.

Resistance Level for Putting Stop Loss Level for Sell Trade - Forex Stop Loss Order Setting

Resistance Level for Setting StopLoss Level for Sell Trade

You can also use stop loss orders to lock in profits, Not for just Preventing Losses

The advantage of a stop loss order is that you don't have to monitor the market on a daily basis how the forex market is performing. This is especially handy when you're in a situation which prevents you from watching and monitoring your open trades for an extended time period, or when you want to navigate to sleep after trading the whole day.

The disadvantage is that the forex price at which you set these stop loss orders could be activated by a short-term fluctuation in a currency price volatility. The key is picking a stop loss percentage that allows the currency price to fluctuate/oscillate within the day to day range while preventing the down side trading risks.

These stop loss orders are traditionally thought of as a way to stop losses thus the title. Another use of these stop loss orders is to lock in profits, in which case it's referred to as a trailing stoploss order.

For a trailing stop loss order it's set at a percentage level below the current market price. This trailing stop loss level then adjusted as the trade position unfolds. Using a trailing stop level allows you to let profits run while at the same time ensures that should the market turn you'll have locked in some of your trading profits.

These stop loss orders can also be used to eliminate risk if a trade becomes profitable by moving the stop loss order to the level where the forex trade was opened. If a trade makes some justifiable gains then the stop loss order can be moved to break even point, the point at which you bought the trade, thereby ensuring that even if the trade transaction position moves against you, you'll not make any loss, and instead you'll break even on that position.

Trailing stop orders are used to maximize & protect profit as a currency price rises and cap losses when the price falls.

A good example is when you use the parabolic SAR Indicator & keep moving your stop loss order level to the Parabolic SAR level.

Parabolic SAR Indicator for Putting Trailing StopLoss in Forex Trading

Parabolic SAR Indicator for Placing Trailing Stop-Loss Orders in Forex

Another example is where a trader moves his stop loss by a certain number of pips after every few hours or after every one hour or after every 15 minutes depending on the Forex chart time frame that the trader is using to trade forex.

In the forex example above the parabolic SAR which had a setting of 2 and 0.02 was used as the trailing stop for the above forex chart. The trader would have kept moving the trailing stop level upwards after every Parabolic SAR was plotted until the moment when the Parabolic SAR was hit and the forex trend direction reversed.

Conclusion A stop order is a simple tool, yet so many traders fail to use it. Whether it is used to minimize excessive losses or to lock in trading profits, nearly all investing styles can benefit from this tool.

Factors To Remember When Setting These Stop Orders

Here are some important points to remember:

Be careful with the points where you set these stop loss orders. If a currency normally fluctuates 20 points, you do not want to set and place your stop order too close to that range else you'll be taken out by normal market price volatility

Stop Loss orders take the emotion out of a trading decisions and by setting one you set pre determined point of exiting & getting out of a losing position, meant to control losses.

Traders can always use indicators to calculate where to set and place these stoploss order levels, or use the concepts of Resistance and Support Levels to identify where to set these stop loss orders. Another good indicator used to set these stop loss orders is the Bollinger bands where forex traders use the upper and lower band as the limits of price therefore placing these stop loss orders outside the Bollinger Bands.

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Stop Loss Summary: Points To Remember When Putting Stop Loss Orders

You can also use stop loss orders to lock in profits, Not for just Preventing Losses

Factors To Remember When Setting These Stop Orders