Stop Loss Orders in Forex

Stop Loss Orders in Forex

The fact of the matter is that the Forex market can be very unpredictable, which is why stop loss orders are so important. A stop loss order is one of the primary tools which a trader has at his or her disposal in order to avoid large losses. Today we want to take a closer look at exactly what stop loss orders are, why they are important, and what the different types are.

What are Stop Loss Orders?

Stop losses are a special type of order which can be executed on trading platforms and via your brokers. This is an order designed to limit losses in the even that the market goes in the opposite direction of a trade that was placed.

SL orders are set at a specified amount of pips away from the starting price. For instance, you can set these orders so that if a trade moves 10 pips against you, the trade will close on its own and save the rest of your investment, thus limiting the amount of money lost.

So, in essence, if you place a buy order, but the price goes down, a stop loss order would prevent you from losing the full investment.

The fact of the matter is that markets, especially the Forex market, is very volatile and often unpredictable. No matter how much work and analysis you put into your trades, things can always go wrong, and this is where SL orders come into play.

Stop Loss

5 Forex Stop Loss Strategies to Know

Here we have 5 different stop loss strategies that you can employ in order to limit losses in the event that a trade goes south.

Using Static Stops

One way to set a stop loss is to set it at a static price point, which means that you set it at a certain point and do not expect to move or change it. This is a really simple way to set an SL and it allows traders to easily set a one to one risk to reward ratio.

In other words, if you want to keep your risk to reward ratio at 1 to 1, you can set your static stop loss at 50 pips below the entry price, while setting the take profit at 50 pips above the entry price. This is by far the simplest way to set an SL order.

Setting Static Stops with Indicators

This method of setting SL levels is much like the first one we just looked at. However, this one also involves the use of indicators. Some people use indicators such as the ATR (average true range) to do this. The big bonus here is that instead of setting an arbitrary SL, traders use actual technical market information to set the stop loss.

The bonus here is that traders can accurately analyze risk management options by using indicators such as pivot points and price swings and by using recent market information. Unlike simple static stop losses, here you actually use market information to make your decision more accurate, reliable, and less costly in the even that a trade goes south.

Using Manual Trailing Stops

For those Forex traders who want to exercise maximum control over their trades at all times while those trades are open, using manual trailing stop loss orders is a good way to go.

In other words, this type of SL involves a trader needing to pay close attention to open positions, because the trader will manually move the stop loss according to what is unfolding in front of him or her.

In essence, the further a trade moves in favor of your position, the further the SL order is moved to accommodate this. Then, when the market trend finally reverses, the position will be stopped out.

Stop Loss

Trailing Break Even Stops

This specific type of trailing stop loss is similar to the other one we just looked at, but it allows for even better money management and risk management. Once again, a trailing SL is where a trader can adjust the SL level as the trade moves in his or her favor.

This is of course an attempt to mitigate as much risk as possible in the event that the trader makes a wrong decision and the market moves against him or her. The point here, for example, is that if you set the stop order to 50 pips below the entry price, if the price moves up by 50 pips, you can then adjust the stop order, say by 50 pips.

Now, your SL order would actually be at your break even point, or in other words, at the entry price. This is why this type of SL is also referred to as a trailing break even stop loss, because at the end of the day, the aim is to set the SL at the entry price, so that if a trade goes south, no money will be lost.

The Fixed Trailing Stop

The fifth and final type of SL order that we want to talk about today is the fixed trailing stop order. This type of stop order is like the other types of trailing stops, with the difference being that the trader sets the increments in which the stop loss order adjusts.

In other words, instead of manually having to adjust the order every time the market moves in your favor, you can set your trade to automatically adjust by a set amount of pips when the market moves in your favor. These automatic adjustments will continue until the trade is closed or until the stop order is hit.

Stop Loss Orders – Final Thoughts

The bottom line is that when it comes to Forex trading, the stop loss order is indeed one of your best friends. You won’t always be able to place the right trade, and when the time comes, you will be thankful that you learned all about SL orders. They can end up saving you a whole lot of money!

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The 7 Basics of Forex Strategies

The 7 Basics of Forex Strategies

When it comes to the world of Forex, something you really cannot do without are trading strategies. Yes, Forex strategies are very diverse and there are plenty of them to go around, hundreds in fact. If you plan on actually making a profit in foreign currency exchange trading, you need to have a solid plan in mind.

In other words, you need to have a mastery of various Forex strategies in order to profit. Without the right knowledge, skills, and some solid strategies in your arsenal, chances are pretty big that you will not see success anytime soon. Yes, FX trading is much harder than the pros make it look. Now, today we do not want to focus on specific Forex strategies for profitable trading.

What we want to focus on here are the basic components and the fundamentals which go into creating and using Forex strategies the right way. Specifically, today we want to cover the 7 basic components that you need to prepare for in order to make your Forex strategies work for you.

Forex Strategies

The 7 Fundamentals of Forex Strategies

Alright, so as we mentioned above, there are 7 vital components to every Forex strategy. More than that, these 7 fundamentals are crucial to master and to keep in mind at all times when you are trading, and this is regardless of the specific strategy you plan on using. If you follow the 7 tips that we have outlined below, you should be able to make any and every Forex trading strategy work to your advantage.

Money Management

Perhaps the most important component that you need to factor into all of your Forex strategies for Trading is money management, which is another way of saying risk management. Of course, the risk of losing money is an inherent part of trading FX, as well as with stocks, commodities, and so much more. What you need to know here is that losing money is inevitable.

No, we don’t mean losing everything, but losing a trade here and there is going to happen no matter how well prepared you are. This is the nature of the game. However, it’s all about how well you manage your money and the risk of it all. In other words, never risk more money than you can afford to lose comfortably, so no using your rent or mortgage money to trade currencies! Don’t use it if you can’t afford to lose it.

Time Management

The next important component of Forex strategies for profitable trading is time management. No, of course, you cannot spend the live long day trading, especially if you have a day job. However, equally as important to know is that profitable traders do spend all day trading, with many being full time traders who make all of their money in the world of FX.

Now, if you have a day job, you will still need to dedicate at least a few hours per day to trading, at least if you plan on being successful. The reason why people who trade for only an hour each day usually are not successful is because they miss the best opportunities. Simply put, you always have to be on the lookout for the best opportunities by keeping an eye on the market whenever possible.

Starting Small

Something that you always need to do, particularly if you are newbie testing out new Forex strategies, is to start off small. By this, we meant that you should stick to the smallest lot sizes possible and never invest a large chunk of cash into any one trade. If you are not yet very experienced, risking so much money is not worth it, especially considering that due to your status as a newbie, things are likely to not go your way.

Therefore, it’s best to start small. Moreover, by starting small, we also mean that you should not place a very large number of trades per day. Just like with anything else out there, it’s all about quality, not quantity. Also, having too many trades open at once makes things hard to track. It’s best to practice with some Forex strategies and master them before you start trading high volumes.

Being Consistent

The next important basic of Forex strategies, no matter which one you use, is that you need to be consistent with it. Now, this only applies if you are using a proven strategy that has shown results in the past, either for you or others.

However, the point here is that you need to keep things the same and constant. If it works, don’t fix it. You need to stick to your plan, especially if it is a good one. Don’t veer off course, don’t let your heart and your emotions tell you what to do, and don’t start changing things up if there is no need. Consistency is key.

It’s All About the Timing

Something else to keep in mind in terms of using various Forex strategies as a newbie is that timing is very important too. As a beginner, it’s best not to start trading right when the market opens up or right when you open up a chart.

As a newbie, you want to take your time, you need to evaluate the best course of action, and you need to strike while the iron is hot. That said, rushing into a trade too quickly is not a good idea. So, if you see a profitable opportunity, take it, but don’t execute lackluster trades just so you have made a trade.

Getting an Education

If you want to learn everything there is to know about Forex strategies, what they are, how to use them, and so much more, it’s best to get educated. FX trading is not something you can just do successfully without any training. It takes a lot of hard work and skill to get to a level where you are profiting on a consistent basis. Therefore, getting a solid Forex trading education is crucial.

Practicing with Demo Accounts

Finally, you do want to get some practice in. There are plenty of brokers and platforms out there that come with free demo accounts where you can trade using fake money. Before you start using new Forex strategies, test them out using such a demo account, just to make sure that you know what you are doing.

The Basics of Forex Strategies – Final Thoughts

There you have it folks, the 7 basics of Forex strategies for profitable trading. Now that you know what these fundamentals are, you can get to mastering some simple Forex trading strategies that will put money in your pocket!

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