One of the biggest things in trading is the placement of Stop Losses in your trades. Part of any money management system, Stop Losses orders bring discipline to Forex traders. Any Forex trading strategy starts with planning. To manage future Forex trades, traders plan both the entry and the exit. While the aim is to profit from every trade, the reality tells a different story. Losses are part of the trading game. And, they happen quite often. The secret is to manage them. Or, how to react when they appear.
The Stop Loss is an order, which you add to your trading position during or after the time of initiating your trade. Traders use the Stop-Loss order to request an automatic exit from trade in cases where the price reaches a specific level. This way, if the price action moves against your trade, your position will be closed automatically upon reaching the pre-defined specified level. The Stop Loss order usually appears as a visual level on your chart. On the MT4 platform, the Stop Loss appears as a dashed horizontal line.
The illusion is that the Stop Loss order itself is the issue. But it’s merely an order type which executes in the market when the price at which it was placed is traded. Nothing more, nothing less. In reality, the protection offered and the problems created by using this order are generated by the trader. So it is the responsibility of the trader, like everything else in trading, to analyze how a Stop Loss order can be used and whether it is appropriate to a specific strategy. By doing so the trader can have the confidence to stick with the order when trade results in a negative outcome.
Although where an investor puts stop and limit orders is not regulated, investors should ensure that they are not too strict with their price limitations. If the price of the orders is too tight, they will be constantly filled due to market volatility. Stop orders should be placed at levels that allow for the price to rebound in a profitable direction while still providing protection from excessive loss. Conversely, limit or take-profit orders should not be placed so far from the current trading price that it represents an unrealistic move in the price of the currency pair.
Even if you have the best Stop Loss price entry in the world, there is always that chance where the market takes it out and then goes in the direction which you anticipated. There is nothing we can do about that. This is a fact of life and trading. The best practice is to set Stop Loss at the same time you are placing your order. You should know in advance where you want to set your Stop Loss. When you are placing your order, you set Stop Loss right way. Why? Because later you are probably going to hesitate to place it. You might also place it in a wrong place, because of emotions.
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