Forex Stop Loss Strategy

July 4, 2016

Forex Stop Loss StrategyKnowing when to exit a trade can be a problem to many of you. You might learn everything there is to know about trends, charts, and various popular trading methods, but if you don’t know when a trade is going south and miss an opportunity to place an exit, it is of no use to you in your business. Every serious Forex trader pays close attention to safety and setting a stop loss order is a clever way to protect their funds.

I do understand that it is exciting to trade on Forex without any long term protection, but at the end of the day, it is your own money on the line and there is always a possibility that you will lose it if you are not careful enough. That is where a stop loss order comes into play. Placing it correctly will save you from any potential losses and it can become a powerful trading strategy as well.

What is a stop loss order?

Before we dive in, it is important to explain what exactly a stop loss order is. There is no way to be 100% sure where the market is heading. You can do all the possible research, glue yourself to charts, religiously follow the current events, and still end up with more losses than profit. Surely, you might find success with your other trades, but if you are losing more than you are winning, you are not in a good position at all. You need to learn how to manage your account properly and balance out the win-loss ratio.

You are probably already familiar with the terms stop loss and take profit. Stop loss is an order which is placed at a mark of your choice and if a trend drops to your stop loss position, you will automatically exit a trade, preventing you from further losses. If placed in time and in a right place, FX stop loss strategy will keep your funds safe if the market turns against you.

Take profit is the exact opposite from stop loss and it is placed as a marker of the highest price you think a trend will reach and once that happen, you are automatically selling, making profit, and exiting a trade at the same time.

Improve your knowledge for free using best Forex books!

Developing a stop loss strategy

First of all, you need to ask yourself how much time you are going to spend on a given trade, and then think about the money you are willing to risk. This is the foundation of developing a solid Forex stop loss strategy. The answer to the first question depends on whether you are a short-term or a long-term trader and you will need to act accordingly.

If you are a long-term trader, set fewer stop losses in your Forex best stop loss strategy. Also, you should collect your profit every now and then. Setting a point for selling and collecting the profit is important because you do not want to get too attached to a single trade. Short-term traders should focus on setting more stop losses and quickly eliminating those who are at a standstill. Besides that, you need to be on top of your fundamental and technical analysis because a lot can happen in a short amount of time.

Risk is crucial here. If you are ready to jeopardize more money, your stop losses will be placed widely, and if you are playing it safe, tighter stop losses will be used. Keep in mind that the market is always changing and prices are constantly going up and down. Placing a stop loss order away from the expected market oscillations is a must. You surely don’t want to trigger a stop loss order for nothing.

Forex trading stop loss strategy should be fairly easy to execute. The vast majority of today’s trading platforms have an option to place an order. It is best if you set a stop loss immediately after entering a trade. If you are stuck with a trading platform that doesn’t have a stop loss option, there is a way to go around it. Simply place a limit order and you are good to go.

Learn how to place Stop Loss on free real account with 30 USD from XM

Stop Loss Strategy: Conclusion

Stop loss FX trading strategy might be exactly what you have been looking for. It is excellent for both long-term and short-term Forex traders and it is straight forward. It might give you an opportunity to trade big if you are willing to risk more. Placing a stop order is not difficult. Knowing how much you are willing to risk in a single trade is a must and this type of trading method can prevent any sudden or unexpected losses.