Forex trade is a profitable way of making money online. You can do it from anywhere. It's a great way to earn money, especially if you are a wise investor.
FX traders will tell you it's pretty exciting to place trades and make profits on Forex trading platforms. But it would be best if you had a way to manage your profits once you get them.
How do you do that when the market is always open, and you desire to keep trading?
Well, there is no need to worry. Expert forex traders have devised several ways to protect their profits in the dynamic forex market, and you can also benefit from them.
One widely used method is using stop losses. What are these, and how can you use them in the FX trade?
This article will give you information on stop losses and examples of how to use them when trading Forex. Let's begin.
What is stop loss order?
Stop losses, also known as stop market orders, are orders placed in Forex to protect traders from losing all their profits in an open position.
These pending market orders enable forex traders to predefine levels on a price chart that will close their trading position.
Let's say a trader enters the market at 1.1980; the stop loss could be set 100 pips lower at 1.1880.
That means the trader will only lose 100 pips on that trade if currency prices go in the opposite direction.
In this way, stop market orders ensure a trader saves part of their profits on a trade if things go the wrong way.
How do you set stop - loss correctly?
You can apply stop losses to any long or short trading position.
For example, if a trader enters a buy position ( long position) expecting prices to rally higher, he may place a stop-loss order below the entry price to minimize losses.
Stop losses also work in short trade positions where traders set a market order expecting prices to fall.
Short forex traders place stop loss orders at a higher level than their entry price to cut their losses quickly in case of a price spike.
Stop loss orders limit traders' risks during trading hours and can be modified anytime. They are placed when forex traders initiate trades.
Forex trailing stop strategy
Trailing stop losses are used to automatically adjust stop losses in a favorable market. These market orders automatically push stop-loss orders forward as the market price improves.
A trailing stop order will allow a trade to gain value as long as the market price moves up and keeps gaining profits.
The forex trader only has to specify the number of pips they wish the stop order to trail behind after every shift in the currency price.
In the above example, if the quote of the Eur/Usd currency pair goes up to 1.2080, the trader can move the stop loss up to 1.1980 based on a 100 pip trail stop order. This ensures the continuous protection of a trader's profits.
So in summary, what does using stop losses and trailing stop losses do for forex traders? It ;
- Frees traders to work on other things knowing they cannot lose excessive capital in a trade.
- Cuts off any emotionalism from a trade, ensuring a trader does not hold on to a position beyond logic or close it too soon out of fear.
- Makes it easier to manage risks when placing serious trades, especially when there is a significant shift in the market.
Conclusion
That's some information on setting Forex Stop Losses. Using stop losses will help you to make profitable trades and minimize your losses.
Have you tried trading Forex with stop losses? If so, what do you think about them. Share with us in the comments.
If you haven't traded forex, why don't you try? It's a great way to earn money from home.
It would be best if you traded with a good broker who will give you the ideal tools to ensure you make profits when trading Forex.
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