Trade Forex Trading

Where to Calculate Stop Loss for Trading - Where to Set StopLoss Order in Forex Trading

Where to Put Stop Loss in Market - Where to Put Stop Loss Trading

StopLoss Order is a type of order that's positioned after registering and opening a trade that's intended to cut losses if the market trend moves against you.

Stop Loss is a pre-determined point of exiting a losing trade and it is meant to control losses in forex trading.

A forex stop loss order is an order placed with your broker that will automatically/mechanically close out your open trade transaction when price of your open trade order reaches a pre-determined price. When set level is attained, your open trade is liquidated.

These orders are intended to restrict the sum of money that one can lose: by closing the trade if a particular price that's against the FX trade is attained.

For example, a trader may open a buy trade & 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 FX trade will be closed out therefore limiting the loss to 20 points (pips) - Where to Set StopLosses Examples.

Regardless of what you may be told by other traders, there's no question about it that whether if these stop loss orders should or shouldn't be used - stop loss orders should always be used.

One of the more challenging things in Forex trading is setting these stop loss orders - Where to Calculate Stop Loss for Trading - Where to Set StopLoss Order in Forex Trading. Put the stop loss too close to your entry price & you're liable to exit the FX trade because of random market price volatility. Place the stop loss order too far away and if you are on the wrong side of the trend, then a small loss could turn into a big loss.

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

The critics will also argue that in setting stoploss orders you're vulnerable to exit a trade position position just before the market moves in your favor. Most traders have had the experience of setting a these stoploss orders and then seeing the price retrace to that stoploss order level, or just few points below it, and then go in direction of their original market trend analysis. What might have been a profitable position instead turns in to a loss.

Experienced traders always use stop loss orders as they're an important part of the discipline that's required to succeed in forex because stop loss orders can limit a small loss from becoming a big loss. What is more, by purposefully putting 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 is really happening with market, this is because the most objective analysis is carried out prior to opening a trade position. After entering the market an investor will tend to analyze & interpret the forex market differently because now they have a bias toward a particular side of the market, the direction of their trading analysis - Where to Set StopLoss Order in Forex Trading.

Unexpected economic news can come out of the blue & dramatically affect the market price: this is why it's so important to have a stop loss set for your open trade position. It's best to cut losses early when a trade transaction is going against you, it's better to cut your trading losses immediately instead of waiting for the loss to become a large one. Again, if you set your stop losses when you're entering a trade, then that is when you're most objective as a trader - Where to Calculate Stop Loss for Trading.

How to Calculate Stop Loss in Forex - Where to Set StopLoss Order in Forex

A key question is precisely where to place and set this stop loss. In other words, how far should you as a trader place and set this stoploss order below your purchase price? Many traders will tell you to set predetermined - maximum acceptable loss per trade, an amount based on your equity balance rather than use technical indicators for calculating where to set the stop loss order - Where to Set StopLoss Order in Forex Trading.

Professional money managers advice that you should not lose more than 2 % of your account equity on any one single trade position. If you've got $10,000 in capital, then that would mean the maximum loss that you should set for any one single trade position is $200 - Where to Calculate Stop Loss for Trading.

If you opened a trade position then that would mean you would limit your risk to no more than $200 dollars 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 the trade that you've opened - Where to Put Stop Loss in Market - Where to Put StopLoss Order Trading. The topic of risk management is a wide topic and it's discussed under learn equity management topics.

Factors to Consider When Setting StopLoss - Where to Put Stop Loss in Forex

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

Because there aren't any rules set in stone as to where you should place these stop loss orders on a chart, we follow general stop loss order setting guidelines used to help place these stoploss orders correctly.

Some of the general forex stop loss setting guidelines used are:

1. Risk Percent - How much is one willing to lose on one position. The general stop loss order setting rule is that a fx trader should never lose more than 2 percent of the total account capital on any one trade.

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

3. FX Trading Risk : Reward Ratio - this is the estimate of the potential risk:reward calculated before opening a trade transaction. If the market factors and conditions are favorable then it's possible to comfortably give your trade more room. However, if the market is too range-bound it then becomes very risky to open a trade transaction without a tight stop loss - then don't make the FX trade at all. The risk:reward ratio isn't in your favor and even setting tight stop loss orders won't guarantee profitable results. It would be more wise to search for a better trade setup to trade next time.

4. Trade Position Size - if position size opened is too big then even the smallest decimal point move will be fairly large in risk % terms. This means that you have to set a tight stop loss for your trade which might be taken out more easily. In most cases it's better to adjust to a smaller trade position size so as to give your trade more space for fluctuation, by setting a practical stop loss level for this stop loss order while at the same time decreasing the risk for the trade position.

5. Trading Account Equity - If your trading account is under-capitalized then you'll not be able to place/set your stop losses accordingly, because you'll have a large amount of money invested on a single position that will force you to set tight stop loss orders. If this is case, you should think seriously about whether you've enough capital to trade Forex in the first place.

6. Market Conditions - If the price is trending upwards, a tight stop may not be necessary. If on the other hand the price is choppy and has no clear market trend direction then you should use tight stop loss order or not open any transactions at all.

7. Timeframe - the larger the chart time frame you use, the larger the stoploss order level should be. If you were a scalper your stop losses would be tighter than if you were a day trader or a swing trader. This is because if you are using longer time-frames and you figure out the price will be move upwards it doesn't make sense to set a very tight stop loss order because if the price swings a little, your open order will be hit.

How to Calculate Stop Loss in Forex Trading - Where to Set StopLoss Order in Forex

The method of setting stop loss orders that you select will greatly depend on what type of trader you are. Most oftenly used method to identify where to set stop loss orders is - resistance and support levels. These support & resistance areas give good points for setting these stop loss orders as they're the most reliable levels to set stop loss orders, because the support & resistance zones will not be tested many times.

Where to Put Stop Loss in Market - Where to Put Stop Loss Trading

The technique of how to set these stop loss orders that you as a trader choose should also follow the stop loss setting guidelines above, even if not all these guidelines apply to your strategy try to implement the guide-lines that will apply to your strategy depending on what type of trader you're.

Where to Calculate Stop Loss for Trading - Where to Set StopLoss Order in Forex Trading - Where to Set StopLosses Examples - Where to Put Stop Loss in Market - Where to Put StopLoss Order Trading

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