Forex Stop-Loss Order Defined - Stop-Loss Order Example Forex Trading

Forex Stop Loss Order Meaning - Stop Loss Forex Order Management - Forex Trading Money Management

Stop Loss Order is a type of order placed after opening a forex trade that's meant to cut losses if the forex market trend moves against you.

Stop Loss Order is a predetermined point of exiting a losing forex trade & it is meant to control losses in forex trading.

A forex stop-loss order is an order placed with your forex broker which will automatically close your open forex trade when the price of your open trade order reaches a pre-determined price. When the set level is reached, your open forex trade transaction is liquidated.

These orders are designed to limit the amount of money that trader can lose: by exiting the forex trade if a particular price that's against the trade is reached.

For example, a trader might open a buy trade & put a stop loss of 20 pips, if the price moves against the trader by 20 pips the forex stop loss order will be filled and the trade will be liquidated therefore limiting loss to 20 points (pips) - Forex Stop Loss Order Definition.

Regardless of what you may be told by other forex traders, there is no question about whether these forex stop loss orders should or should not be used - forex stop loss orders should always be used.

One of the most difficult things in Forex trading is setting these forex stop loss orders - Forex Stop-Loss Order Defined - Stop-Loss Order Example Forex Trading. Put the forex stop loss order too close to your entry price and you are liable to exit the forex trade due to random market volatility. Place the forex stop loss order too far away & if you're on the wrong side of the forex trend, then a small loss could turn into a large trading loss.

Skeptics will point out several disadvantages of these forex stop-loss orders: that by placing them you're guaranteeing that should your open forex trade position move in the wrong direction, you will end up selling at lower prices, not higher.

The critics will also argue that in setting forex stop loss orders you are vulnerable to exit a forex trade just before the forex market moves in your favor. Most traders have had the experience of setting a these forex stop loss orders & then seeing the price retrace to that forex stop loss order level, or just below it, and then go in direction of their original forex market trend analysis. What might have been a profitable forex trade position instead turns into a forex trading loss.

Experienced forex traders always use forex stop loss orders as they are an important part of the discipline required to succeed in forex trading because forex stop loss orders can prevent a small loss from becoming a big loss. What's more, by diligently setting these forex stop loss orders whenever you enter a forex trade position, you end up making this important decision at the point in time when you are most objective about what is really happening with forex market, this is because the most objective forex technical analysis is done before opening a forex trade. After entering the forex market an investor will tend to analyze the market differently because they have a bias toward one side of the market, the direction of their forex analysis - Stop-Loss Order Example Forex Trading.

Unexpected forex economic news can come out of the blue & dramatically affect the forex trading price: this is why it's so important to have a forex stop loss order set for your open forex trade. It is best to cut forex losses early when a forex trade position is going against you, it is better to cut your forex losses immediately rather than waiting for the loss to become a big one. Again, if you set your forex stop loss orders when you are entering a trade, then that is when you are most objective as a trader - Forex Stop-Loss Order Definition.

Forex Trading Stop-Loss Order Definition - Stop-Loss Order Example Forex Trading

A key forex question is exactly where to place a this forex stop loss order. In other words, how far should you place this forex stop loss below your purchase price? Many forex traders will tell you to set pre-determined - maximum acceptable loss per forex trade, an amount based on your forex account balance rather than use technical indicators for calculating where to place the forex stop loss order - Stop-Loss Order Example Forex Trading.

Professional money managers advice that you should not lose more than 2% of your forex account equity on any one single forex trade. If you have $10,000 in forex trading capital, then that would mean the maximum loss you should set for any one forex trade is $200 - Forex Stop-Loss Order Definition.

If you opened a forex trade then that would mean you would limit your risk to no more than $200 for that specific forex trade. In that case you would set your forex stop-loss order at 200 or the equivalent number of pips based on your forex position size of the forex trade that you've opened - Forex Stop Loss Order Meaning - Stop Loss Forex Order Management - Forex Money Management. The topic of forex risk management is a wide topic & it is covered under learn forex money management topics.

• Forex Money Management Introduction - Factors to Consider When Setting Stop Loss Orders
• Forex Money Management Methods - Forex Stop Loss Order Meaning - Stop Loss Forex Order Management - Forex Money Management

Factors to Consider When Setting Stop-Loss Orders - Stop Loss Management

The most important question is how close or how far this forex stop loss order should be set from the forex trading price where you entered the forex trade position. Where you set the forex stop loss order will depend on several factors:

Since there are no rules cast in stone as to where you should place these forex stop loss orders on a forex chart, we follow general forex stop loss order setting guide-lines used to help place these forex stop loss orders correctly.

Some of the general forex stop loss order setting guidelines used are:

1. Risk Percent - How much is a trader willing to lose on a single forex trade transaction. The general forex stop loss order setting rule is that a trader should never lose more than 2 percentage of the total forex account capital on any one single FX trading transaction.

2. Forex Market Volatility - forex market volatility refers to the daily price range movement of the forex currency pair that you are trading. If a forex currency pair routinely moves up & down in a range of 50 pips or more over the course of the day, then you cannot set tight stoploss when you open a forex trade. If you do, you will be taken out of the forex trade position by the normal forex market volatility.

3. Forex Trading Risk:Reward Ratio - this is measure of potential risk to reward calculated before opening a forex trade. If the forex market conditions are favorable then it is possible to comfortably give your forex trade more room. However, if the market is too choppy it then becomes too risky to open a forex trade without a tight stop-loss - then do not make the forex trade at all. The forex trading risk to reward ratio is not in your favor & even setting tight forex stop loss orders will not guarantee profitable results. It would be wiser to look for a better forex trade position to next time.

4. Forex Trade Position Size - if forex trade size opened is too big then even the smallest decimal price movement will be fairly big in risk percentage terms. This means that you have to set a tight stoploss for your forex trade which may be taken out more easily. In most cases it is better to adjust to a smaller forex trade position size so as to give your forex trade more space for fluctuation, by setting a reasonable forex stop loss level for this forex stop loss order while at the same time reducing the forex risk for the forex trade.

5. Forex Account Capital - If your forex account is under-capitalized then you will not be able to set your forex stop loss orders accordingly, because you will have a big amount of money invested in a single forex trade which will force you to set very tight forex stop loss orders. If this is the case, you should think seriously about whether you've enough capital to trade Forex in the first place.

6. Forex Market Conditions - If the forex trading price is trending upwards, a tight stop might not be necessary. If on the other hand the forex trading price is choppy & has no clear forex market trend direction then you should use a tight stoploss or not open any forex trades at all.

7. Forex Chart Time frame - the bigger the forex chart time frame you use, the bigger the forex stop loss order level should be. If you were a scalper forex trader your forex stop-loss orders would be tighter than if you were a forex day trader or a forex swing trader. This is because if you're using longer forex chart time-frames & you determine the forex trading price will be move upwards it doesn't make sense to set a very tight stop because if the forex trading price swings a little your open forex order will be hit.

Forex Trading Stop-Loss Order Definition - Stop-Loss Order Example Forex Trading

The method of setting forex stop loss orders that you choose will greatly depend on what type of trader you are. The most oftenly used method to determine where to set forex stop loss orders is - resistance & support levels. These forex support & resistance areas give good points for setting these forex stop loss orders as they are the most reliable levels to set forex stop loss orders, because the support & resistance areas will not be hit many times.

Forex Trading Stop Loss Order Definition - Stop Loss Forex Order Management - Forex Trading Money Management

The method of how to set these forex stop loss orders that you select should also follow the forex stop loss order setting guidelines above, even if not all these guidelines apply to your trading strategy try to implement the tutorial lines that will apply to your trading strategy depending on what type of trader you are.

Forex Stop-Loss Order Defined - Stop-Loss Order Example Forex Trading - Forex Stop Loss Order Defined - Forex Stop Loss Order Meaning - Stop Loss Forex Order Management - Forex Money Management