- How and Where to Place Stop Loss Orders on Your Forex Trades
- Quiz Time!
- Forex: Where to Put Stop-Loss?
- What is a Stop Loss? -
When stop loss is set too tight then there is a strong chance that you will be stopped at first bigger move or stop hunt. Markets are very volatile today and it is easy to be stopped out when your stop is too close. Because stop loss is very near the entry point, when it gets triggered, loss on account is small. The main problem is that tight stop losses get triggered very often.
Soon you have dozen of small losses which altogether are one huge loss on your account. Nobody likes to be stopped out from a trade. Some traders place their stop losses very wide to avoid that. They do not want to be caught during stop hunting or correction. Wide stop losses are triggered rarely, but when it happens — loss is very big. On some occasion that works, but on many times they are eventually stopped out and loss from that is very big.
So what is the answer here? You have to find something in the middle! Ok, I know that this is not the answer ;. Start from looking closely at price action. If you have read my others articles, you saw the next chart, but this is an answer for your problem.
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I assume that you are trying to invest in a trending market. When there is no trend, you do not trade. What we know is that in an uptrend we have a sequence of higher highs and higher lows, just like on the chart. If the trend is strong and healthy, you can easily see that sequence just looking at the price. When there is something wrong with trend, price has problem to make next high — sign that correction is possible. With all that information you can place your stop below last significant low, when you are in a long position.
When trend is healthy, you should make your money. When trend is very weak, you will be stopped out. It is a good thing because probably the price will go even lower than your stop loss. Look at the logic here. If price in a downtrend will manage to break above recent high, then there is a strong chance that buyers are trying to take over the control.
You do not want to be short in that situation. You want to close your position and look for other opportunities.
How and Where to Place Stop Loss Orders on Your Forex Trades
I am a fan of that method, yet many people do not use it. It is very simple, so in your next trades try to use it. How does it work? You place your stop loss when you are opening a trade. On some occasions you will be stopped out pretty fast. Other times trade will go as you wanted to. That is good, but what do you do when your trade is profitable?
It still can turn around and trigger your stop loss and from profitable trade you will end with a loss. That was my mistake actually for many years. I had so many profitable trades for a while, but I was closing it with loss. Now when my trade is profitable, I am simply raising my stop loss to the entry point. This way even if price is going to turn against my position, I do not lose a single dollar. When to raise stop to entry point? Not as soon as your trade is profitable.
Quiz Time!
Just wait some time and see how things are. You have to work out your own system. I usually wait until price is at least twice as far from entry point as my stop loss is. When the price is still going up, I am raising my stop even further. To protect my profit. If price will fail to reach my target, I still book some profit from that trade. It is called trailing stop, because your stop loss is practically following the price all the time.
When price goes up, so is your stop loss. Of course if price in an uptrend is down, you are not lowering your stop.
Stop placement and stop loss orders are among the most controversially discussed trading concepts and there are a lot of misunderstandings and wrong ideas floating around the concept of stop loss orders. In this article, we are not going to provide specific stop loss strategies, but we take a look at general stop loss principles that can help all traders improve how they approach their trading immediately.
If you are trading spot which most people do , then there is no reason for why you should ever be in a trade without a stop. Your stop loss is the place where your idea is proven wrong — and nothing else, although many traders see stops as their enemies.
Forex: Where to Put Stop-Loss?
Without a stop, it does not really matter how big your position is because your risk will be all over the place. A mental stop loss does not have a single advantage over a hard stop: traders who use mental stops stay in losing trades longer, size positions incorrectly and increase their risk unnecessarily. In Forex trading , many people make the mistake of buying a fixed amount of contracts and then adjusting their stop based on the risk they want to have.
Then, their stops end up in random places that absolutely make no sense in the market context. The Trailing Stop is a particularly useful when you pursue trending price moves. When a currency pair enters a trend , the Trailing Stop will follow the price action, and it will be triggered when the trend begins to lose steam or change direction. This way the Trailing Stop Loss order reduces the human factor when trading. Now that you are familiar with the basic types of stop loss orders, we will talk about placing stop loss orders on one of the most-widely used trading terminals — MetaTrader 4.
The first way you can place a Stop Loss order on the MT4 platform is simulatenously while opening a new trade. When you choose to buy or sell a currency pair, you will get a pop-up window, to confirm the level at which you are entering. You will see a Stop Loss field on this window as well. Simply type the desired level, and the Stop Loss will appear automatically on the chart when you confirm the trade.
What is a Stop Loss? -
The other ways to place a stop on the MetaTrader 4 platform is by right clicking the entry line of your trade on the chart or the trade info in the order list in the lower part of the MT4 terminal. The Stop Loss order usually appears as a visual level on your chart. On the MT4 platform, the Stop Level appears as a dashed horizontal line. The image below will show you how the Stop order appears.
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A good place for your Stop Loss order will be the zone below a previous big bottom on the chart, as shown in the image. The red arrow shows you the distance between your entry zone and your Stop placement. This is what you will be risking on the trade. The trade will be in the positive as long as the price is above your entry point, and will be in the negative as long as the price is below your entry point.
If you use a Hard Stop Loss, you can always adjust the order. This is advisable when you are trying to lock in profits on a winning trade, but this is not a good idea when trying to deal with losing trades , as it defeats the purpose of limiting risk by placing the Hard Stop Loss order in the first place.
You sell the pair on the assumption that the price will drop and you will generate profit. At the same time, you place a stop loss order slightly above your entry point to protect your trade in case of an unexpected increase.
The price action creates a rapid drop afterward. In this case, you can manually move your Stop Loss order downward so that you will lock in some of the generated profit. The same is in force if you are long and you move your Stop Loss order above the entry point. Moving your Stop Loss is very easy on the MetaTrader 4 platform. You simply drag the line up or down with the left mouse button. When you choose the desired location, you release the mouse button, and the Stop Loss order relocates by itself.