Stop-Loss: How to Set and Move It When Trading In The Forex Market

Stop Loss. How to use a stop loss in Forex tradingIt is a fact that many Forex traders in Singapore neglect the rules of conducting the open trades. It is proved that if you have a trading strategy that guarantees 50% of profitable transactions, you can trade profitably if you follow the rules for conducting the open trades in the Forex market.

There are at least three ways to work with the stop loss. Here we have listed the pros and cons of each method.

First method: work without a stop loss.

The only advantage of this method is that your open trade can survive the drawdown of the trend without fixing the losses. But this method is good only if after a short drawback the price will go in your favor. In short, this method is good at working in a global trend, when the accuracy of entrance does not matter. This is, perhaps, the only plus, and it is not for every Forex trader as according to the statistics most of the Forex traders in Singapore and other parts of the world enter the market in a wrong direction.

The great disadvantage of this method is that if you have lost, then on the “margin call.”

So don’t have any illusions that the price will resume its movement and go toward you. Stay away from trading without a stop-loss and move on to more sensible ways of conducting the deals.

Second method: set up the stop loss at the opening of the transaction and hold it until you close the order.

The big advantage of working with stop loss is that you are safe from unnecessary losses right after the entrance to the market. When you exit the Forex market by a stop loss order you have time to think again about the current situation and make adjustments to the trading tactics and, if the trend persists, enter the market again.

It is necessary to say few words about the value of the order. Even if the trade is carried on the global trend intraday, do not try to save on a small stop loss and keep it at 15-20 points from the point of enter the market. Forex trading requires extreme precision of the order. It is the fact that the short stop losses close trading positions more often than the longer ones. But in this case every Forex trader chooses the value of stop loss for himself as long as it works for him.

The disadvantages of working with a stop loss, especially if it is short, can be attributed to frequent tripping on pullbacks of the prices. You can watch the market all day long for the right point to enter and close your position due to the short stop loss. Alternatively, give your transaction more space of the price range for the session and thus save your nerves. Another disadvantage of this method is that if you do not have time to move the stop to the breakeven area when the price goes to your direction, instead of a profit you can close your position with a negative balance. Keep your Forex trading positions on a safe side.

Third method – set up the stop loss on an open position after the first rollback (or trailing stop).

This method takes practice, you often hear about it from experienced Forex traders in Singapore. Enter the market with a stop loss, but at a considerable distance from the point of opening of the order. Then you start pulling it as the price moves in your favor.

The biggest advantage a pleasant moment for a trader is pulling it up to the new peaks. By this you are moving the stop loss to the positive area by fixing your profits, which produces a very calming effect on trader’s nervous system :). Besides pulling the stop loss orders under the new peaks, some traders just transfer it to a fixed distance from the current price (i.e. 30-50 points). But in this case it is also necessary to be careful and understand that price rollbacks are needed that can catch your trailing, after which the motion is resumed, but without you.

Having an open and profitable position doesn’t mean that that you have got profit. Until your profitable position is not closed you have chances to lose it. That’s why it is very important to fix your profit by moving up the stop loss and guarantee you a profitable deal even if the price changes the direction and closes your position by a stop loss.

Before opening a trading account with a Forex broker, make sure that it allows you to use different types of stop losses. We trade in eToro trading platform where we can set up any level of a stop loss and change it in the course of trading.

 

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