No investor can effectively trade in the FX markets without understanding the basic use of Take Profit and Stop Loss orders. The following article will explain a beneficial use of the Stop Loss trigger than can give an extra edge to traders.
Unfortunately traders much like all people are governed by their human emotions that can cause even a successfully placed position to yield negative profits. What most new traders fail to fully understand is the benefit of the Stop Loss, which unfortunately is only associated in almost all traders’ minds as a failed position with a loss. Since the trader has now created an overall estimate of the price movement including maximum and minimum expectations then his aim is to enter the market at or close to the best price he estimated. One simple way of entering such a position is, if the entry point is close to the market price you proceed by opening half of your position now and place a Limit order for the rest of the desired position with Take Profit and Stop Loss orders set at all times. When the market goes close to the stop loss, most traders tend to modify their stop loss to higher losses in hopes that the position will return, but in reality if the trader is clear about his stop loss it means that the next possible resistance or support will be some distance away. Our experience has shown that is better to avoid modifying our stop loss but rather let the position hit the stop loss and wait for a better entry point from a better price. New entry points will be right before the next support or resistance followed with the same take profit targets and a new Stop loss slightly above the resistance or slightly below the support. If your position then follows your view as you predicted, then your profit will exceed the initial profit target since it will cover the loss you sustained and add the distance from the old stop loss to the new opening price. If your plan was proven wrong then sticking to your initial Stop loss will once again be the best case scenario. Stop Losses are not always losses, they are new opportunities for more profits or less loss.
How to stop loss
Using Stop Loss in anytime we enter the market is one way to manage our risk in trading. I like to trade using Stop Loss. Keeps me stick with well-controlled trading system.
Replace your stop loss only for one reason:
For Trailing Stop Strategy (although I hardly ever use trailing stop strategy).
-Measure the gap between your stop loss and your open position level.
-Entry strategy
Where will your stop loss be placed using the gap rule on tips above
Try to put your stop loss below Support Level (for Long position) or above Resistance Level (for short position).
-Keep calm when market heading so close to your stop loss.
So if your stop loss is hit, let it go. Use Forex Trading Robots to control it.
Question about forex stop loss strategy
Do you think trailing stops are good for short term intra-day trades?
What happens later is when the price hits your target of 100 pips; the trailing stop loss will be activated.
If the price retraces back 20 pips, you will be stopped out which means that your profit will be 80 pips instead. However if the price continues to move in your favour and hit example 150 pips, your stop loss will now be raised to the 130 pips level which means that you are now making additional 30 pips as compared to your original target of 100 pips.
If the price moves to 200 pips, your stop loss will now be at the 180 pips level. If the price retraces back to the 180 pips level, you will be stopped out but you are making additional 80 pips.
Trailing stop loss is only effective if you are talking about setting it at 20 and above pips. If your trading method can lock about 80 pips and above, I will suggest you to use trailing stop loss.