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 StopLoss Trading

Stop Loss Order is a type of order that's positioned after 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's meant to control losses in forex trading.

A forex stop loss order is an order placed with your broker which will automatically close your open trade transaction when price of your open trade order reaches a predetermined price. When set level is reached, 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 trade is reached.

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 & the trade will be liquidated therefore limiting the loss to 20 points (pips) - Where to Set StopLoss Orders Examples.

Regardless of what you may be told by other traders, there's no question about 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 trade due to random market 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 wrong direction, you'll end up selling at lower prices, not higher.

The critics will also argue that in setting stop loss orders you're vulnerable to exit a trade just before the market moves in your favor. Most traders have had the experience of setting a these stop loss orders and then seeing the price retrace to that stop loss 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 trade position instead turns into a loss.

Experienced traders always use stop loss orders as they're an important part of the discipline required to succeed in forex because stop loss orders can prevent a small loss from becoming a big loss. What's 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's really happening with market, this is because the most objective analysis is done before opening a trade. After entering the market an investor will tend to analyze the market differently because they now have a bias toward one side of the market, the direction of their analysis - Where to Set StopLoss Order in Forex Trading.

Unexpected economic news can come out of the blue & dramatically affect the price: this is why it's so important to have a stop loss set for your open trade. It's best to cut losses early when a trade position is moving against you, it's better to cut your losses immediately rather than waiting for loss to become a big one. Again, if you set your stop loss orders when you're entering a trade, then that's 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 forex question is precisely where to place this stoploss order. In other words, how far should you place this stoploss below your purchase price? Many traders will tell you to set predetermined - maximum acceptable loss per trade, an amount based on your account equity balance rather than use indicators for calculating where to place the stop loss order - Where to Set StopLoss Order in Forex Trading.

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

If you opened a trade then that would mean you would limit your risk to no more than $200 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.

• Forex Equity Management Introduction - What to Consider When Setting StopLoss Orders
• Forex Equity Management Methods - Where to Put Stop Loss in Market - Where to Put StopLoss Order Trading

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 order should be set from the price where you entered the 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 stop loss orders correctly.

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

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

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

3. FX Trading Risk to Reward Ratio - this is the measure of potential reward to risk calculated before opening a trade. If the market 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 trade at all. The risk to reward ratio isn't in your favor and even setting tight stop loss orders won't guarantee profitable results. It would be wiser to search for a better trade position to next time.

4. Trade Position Size - if trade size opened is too large then even the smallest decimal price movement will be fairly big in risk percent 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 reasonable stop loss level for this stop loss while at the same time reducing the risk for the trade.

5. Account Equity - If your trading account is under-capitalized then you'll not be able to set your stop loss orders accordingly, because you will have a big amount of money invested in a single trade position which will force you to set very 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 & has no clear market trend direction then you should use tight stoploss order or not open any transactions at all.

7. Time-Frame - the bigger the time-frame you use, the bigger the stop loss level should be. If you were a scalper trader your stoploss orders would be tighter than if you were a day trader or a swing trader. This is because if you're using longer time frames and you figure out the price will be move upwards it does not 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 vastly depend on what type of trader you are. Most oftenly used method to determine where to set stop loss orders is - resistance and support levels. These support and 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 levels won't be hit many times.

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

The technique of how to set these stop loss orders that you 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 StopLoss Orders Examples - Where to Put Stop Loss in Market - Where to Put StopLoss Order Trading