ForexEzy
No Result
View All Result
  • Top Forex Advisors
    • Best Forex Robots
    • Best Forex Signals
    • Best Managed Accounts
  • Top Forex Brokers
    • Best Forex Brokers
    • US Forex Brokers
    • UK Forex Brokers
    • MT4 Forex Brokers
    • MT5 Forex Brokers
    • Zero Spread Brokers
    • Best PayPal Brokers
    • TradingView Brokers
    • Social Trading Platforms
  • Getting Started
  • Forex Education
    • Forex Basics
    • Forex Trading Strategies
    • Money Management
    • Risk Management
    • Technical Analysis
    • Fundamental Analysis
    • Trading Psychology
    • Social Trading
    • Automated Trading
  • Forex Tools
    • Forex Robots
    • Forex Indicators
    • Forex Signals
    • Forex VPS
  • Forex Forecast
  • Crypto
    • Best Crypto Exchanges
    • Best Crypto Bots
    • Crypto Guides & Forecasts
  • Top Forex Advisors
    • Best Forex Robots
    • Best Forex Signals
    • Best Managed Accounts
  • Top Forex Brokers
    • Best Forex Brokers
    • US Forex Brokers
    • UK Forex Brokers
    • MT4 Forex Brokers
    • MT5 Forex Brokers
    • Zero Spread Brokers
    • Best PayPal Brokers
    • TradingView Brokers
    • Social Trading Platforms
  • Getting Started
  • Forex Education
    • Forex Basics
    • Forex Trading Strategies
    • Money Management
    • Risk Management
    • Technical Analysis
    • Fundamental Analysis
    • Trading Psychology
    • Social Trading
    • Automated Trading
  • Forex Tools
    • Forex Robots
    • Forex Indicators
    • Forex Signals
    • Forex VPS
  • Forex Forecast
  • Crypto
    • Best Crypto Exchanges
    • Best Crypto Bots
    • Crypto Guides & Forecasts
No Result
View All Result
ForexEzy
No Result
View All Result
The World’s Leading Social Trading Platform
Try now
Home Forex Education Forex Trading Strategies

Forex Stop-Loss Orders and How to Use Them

by Tim Baudin
June 29, 2021
in Forex Trading Strategies
0
Forex Stop-Loss Orders and How to Use Them
0
SHARES
11
VIEWS
Share on FacebookShare on Twitter

A stop-loss order is an instruction from a trader to a broker, asking them to close their position once their asset price reaches a predetermined price.

Stop-loss orders are not only tools for minimizing losses but also for locking in profits. For example, assuming that you buy a stock at $10 per share, and it appreciates to $17, you may adjust your stop loss to $15 so that in case the stock depreciates to below $10, you will have locked in a profit of $5 per share.

Traders prefer stop-loss orders due to the orders’ ability to minimize losses. Therefore, traders can pre-determine the number of losses they are willing to take. Many trading platforms provide the automation of stop-losses, thereby enabling traders to concentrate on other productive activities without worrying about the market.

The Best Forex Robots Report Is Already Here!
best forex robots
Check out 30+ best expert advisors with daily updated live results and statistics
Click Here

Where to put stop loss levels

Below are three of the most popular strategies used by traders to determine the appropriate levels for putting their stop loss.

  1. Work with the market psychology and do not try to beat the market: You should study the market’s historical performance and establish the psychological support levels. Your stop loss should not be placed beyond these levels because that could potentially magnify your losses if the market goes against you. For instance, if a stock is currently trading at $105 per share, then $100 would be an excellent level to put your stop loss.
  2. Apply the Fibonacci retracement tool to help determine the potential breakout levels: The critical levels are 61.8%, 50.0%, and 32.5%. Therefore, if the current price is at 61.8%, you should place your stop loss at the level corresponding to 50.0%.
  3. Develop an appropriate risk management plan: For example, if you decide to risk 2% on a given trade, you are willing to take a loss of not more than $20 for a $1,000 investment. Therefore, you should place your stop loss at the level corresponding to the 2% loss. Sticking to the plan will help you minimize your losses. 

Purpose-driven stop losses

As a trader, you may, at times, stop-loss decide to conduct your trade guided by certain predetermined thresholds. Therefore, you can use the types of stops discussed below to help you achieve your trading goals.

Equity stop

This is a type of stop placed based on the percentage of equity. It is a way of protecting your account from uncontrolled losses while maintaining a decent amount of capital to trade with once the market becomes profitable for you. For example, if you have a forex trading account with $10,000, a 2% equity stop loss would close your open positions if the account depreciates to  $9800.

Chart stop

In this type of stop loss, a trader may choose to use one of the two key approaches. Firstly, they may choose to have a dynamic stop loss which will adjust according to changing market fundamentals or technical breakouts. 

Alternatively, they may employ technical analysis indicators such as Fibonacci levels to help them monitor and adjust their stop loss levels from time to time as long as the losses are within their preferred maximum amount. In this case, the trader will close their position once the stop loss goes beyond their preferred maximum.

Volatility stop

This stop is applied by traders when they think their strategy will succeed unless the market experiences volatility. One of the tools you can use is the Volatility Indicator Index. With such a tool, your stop-loss order will only be triggered once there is evidence of market volatility. In the absence of volatility, the other triggers of price oscillations will be ignored.

Volume stop

A volume stop functions on the same principle as the volatility stop discussed above. It is premised on a trader’s confidence that his current position will remain profitable as long as the traded volume does not drastically change. Therefore, the trader will hold on to their current position but will interpret a drastic change in volume as a signal for an impending reversal of trend or a breakout. Consequently, they will close their position.

Event stop

This type of stop order is used by a relatively small number of traders, who, for the most part, are fundamental analysts. An event stop ignores the usual price action, based on what the trader believes is a probable event that can significantly influence the market. Therefore, the trader will not execute a stop loss until the event comes to pass. 

Usually, the strategy works with a timeline within which the event is supposed to happen. Traders may decide against using the event stop if the market fundamentals remain unchanged during the waiting period.

Types of stop-loss orders

1. Trailing stop

This is a stop loss that is dynamic and tracks the price movement while locking in the profits or taking the loss made. The stop loss is placed at a predetermined percentage below the market price and will therefore move up and down with the price action. The profit you make will be directly proportional to the margin between the stop loss level and the current market price.

2. Market order

As you may probably deduce from the name, a market order is an order that instructs the broker to buy or sell at the current market price. It is recommended to use this type of order when you believe that the asset’s buying or selling price is appropriate. It is also preferred when you mean to trade immediately. 

However, market execution has its pros and cons. One of its downsides is that you cannot always count on closing your position at specific prices as the market price will almost certainly move during the period between issuing and executing the order. 

3. Limit  order

This type of order specifies the upper and lower limit prices for buying and selling securities. When selling, this order specifies the minimum amount a trader is willing to be paid. When buying, it tells the broker the maximum amount he should pay for the security. 

Therefore, a trade with a limit order will not be executed until a specified minimum or maximum price is met. This tool is appropriate when you believe that you can buy or sell at a better price than the current market price.

Bottom line

Stop-loss orders are invaluable parts of trade management in general, as well as risk management strategies. There are several ways you can place these orders, stop-loss, and you should work with the ones that best suit your style of trading and also align with your profit targets.

The Best Forex Robots Report Is Already Here!
best forex robots
Check out 30+ best expert advisors with daily updated live results and statistics
Click Here
ShareTweet
Previous Post

Velocity Finder Neural Trader Review

Next Post

Vigorous EA Review

Related Posts

Best 5 Leverage Calculators Use Can Use for Free

Best 5 Leverage Calculators Use Can Use for Free

by Chintan Patel
May 30, 2022
0

Leverage is an important concept in forex and stocks trading. It refers to the amount of money that a broker...

KeyDifferences Between the Simple and Exponential Moving Averages

KeyDifferences Between the Simple and Exponential Moving Averages

by Chintan Patel
April 18, 2022
0

Moving Averages (MAs) are often the first indicator introduced to a newbie in any financial market. They remain the bread-and-butter...

Best Strategies for Trading the Japanese Yen USDJPY

Best Strategies for Trading the Japanese Yen USDJPY

by Adam Stanley
April 6, 2022
0

The Japanese yen is one of the most popular currencies globally because of the position of the country’s economy. Japan...

Best Strategies for Trading the Swiss Franc USDCHF

Best Strategies for Trading the Swiss Franc USDCHF

by Chintan Patel
April 4, 2022
0

The Swiss franc is a popular currency around the world today. It is often viewed as a safe-haven currency because...

How to trade using Larry Connor

How To Make Money Using 2-Period RSI Strategy

by Adam Stanley
February 16, 2022
0

2-Period RSI strategy is a common trading strategy that traders and forex expert advisors leverage to squeeze profits while trading...

Load More

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Best Forex Automated Systems

  • TechBerry 9/10
  • Happy Galaxy 8.5/10
  • Forex Cyborg 8.5/10
  • Forex Fury 8/10
  • FXgoodway 7.5/10
  • Best Forex Brokers
  • Best Forex Robots
  • Best Forex Signals
  • Best Forex Managed Accounts

Top Trading Markets

We are dedicated to demystify the world of forex trading for you – no matter what level you are on.

Categories
  • Automated Trading
  • Cryptocurrency Trading
  • Day Trading
  • Forex Basics
  • Forex Brokers
  • Forex Education
  • Forex Forecasts
  • Forex Indicators
  • Forex Market Commentary
  • Forex Robots
  • Forex Signals
  • Forex Tools
  • Forex Trading Strategies
  • Forex VPS
  • Fundamental Analysis
  • Managed Accounts
  • Money Management
  • News
  • Risk Management
  • Social Trading
  • Technical Analysis
  • Top World Traders
  • Trading Apps
  • Trading Psychology
  • Uncategorized
Tags
arbitrage atr Avalanche AVAX Coin bollinger bands cci chart patterns classics copy trading courses Crypto day trading forex brokers forex charts forex ea forex education forex forecasting Forex Indicators forex software reviews grid trading hedging ichimoku macd market cycles news trading oscillators Polkadot price action trading rsi social trading SOL Solana strategies tips & tricks trading bots trading platforms trend trading Video
  • Terms of Use
  • Privacy Policy
  • Compensation Disclosure
  • Risk Disclosure
  • About Us
  • Contact Us

Copyright © 2023 by ForexEzy.com

No Result
View All Result
  • Top Forex Advisors
    • Best Forex Robots
    • Best Forex Signals
    • Best Managed Accounts
  • Top Forex Brokers
    • Best Forex Brokers
    • US Forex Brokers
    • UK Forex Brokers
    • MT4 Forex Brokers
    • MT5 Forex Brokers
    • Zero Spread Brokers
    • Best PayPal Brokers
    • TradingView Brokers
    • Social Trading Platforms
  • Getting Started
  • Forex Education
    • Forex Basics
    • Forex Trading Strategies
    • Money Management
    • Risk Management
    • Technical Analysis
    • Fundamental Analysis
    • Trading Psychology
    • Social Trading
    • Automated Trading
  • Forex Tools
    • Forex Robots
    • Forex Indicators
    • Forex Signals
    • Forex VPS
  • Forex Forecast
  • Crypto
    • Best Crypto Exchanges
    • Best Crypto Bots
    • Crypto Guides & Forecasts

© 2023, Forexezy. {copy} {year}