Using a stop order on the Forex
A stop order (synonyms - a protective order, stop loss, Eng. StopLoss) - that's an order closing the order at a price that is worse opening price. In other words, at the closing of a stop order trader has a loss on the position. The purpose of putting a stop-loss - limit losses. After all, if the market has made a strong move against an open position, and a protective order is not installed, you can lose half or more of the deposit.
Stop-loss - one of the options pending orders, ie has no immediate execution, and is only triggered when the price reaches a certain level.
Advisability of putting SL (SL)
All traders can be divided into those who actively uses the SL and those who consider it superfluous. Supporters not stop trade of the opinion that it is difficult enough to determine the correct size of the foot. This is true because the wrong size trunk leads to fixation loss, which could be avoided, do not set your stop trader.
Also provides automatic stop order in automated forex systems. This simplifies the work.
On the other hand, setting a stop-loss at all, we are in danger completely lose the deposit. There are cases when the price makes a sudden run to the other side after the opening position - for example, after the release of important news or a sharp increase in trading volumes players with capital. In this case, the protective order is very important.
Give a concrete example. Trader trades on deposit of $ 500, Lot 0.5 recorded a profit after 100 points, the trader doubles deposit. But having a similar movement without stop playing deposit.
We should also highlight the position trade. Trading position, the trader keeps the transaction open for days, weeks, sometimes months. In this case, the presence of stop orders can lead to premature closure of the transaction and the loss of the deposit due to a small correction. Sometimes positional trade SL expose far enough. Thus, on the first place the correct money management, ie size (volume) position.
Place a stop-orders
SL size must always be less than the take profit. The exact size is determined by the trading strategy trader. Many use the ratio 1:2, 1:3 or greater.
When the price moves in the right (profitable) side of the trunk can and should be tightened to breakeven. Thus, while rolling back prices in the opposite direction we will come to zero or a small profit. However, too fast to pull the brake and not worth it - the price may seem like a bit up and down and then we go to the right side. In the case of a very small foot position may be liquidated at a loss.
For a long position (Buy) still exhibit below its opening price. For a short position (Sell) - above its opening price.
Also worth noting that each broker there are limitations on the distance relative to stop the opening price. Most often it is 2-3 points, sometimes 10. during important news is the distance increases. Keep this in their trading.
Using a stop order in most cases gives the trader insurance, cutting losses and not allowing them to grow. This tool should be used carefully, takes practice. We wish you success and remember that the gains from trade is very much depends on your broker!
Go back Stock Market and Forex / Next article The weakness of the dollar and other currency market news