If you want to enter the FX market then look for a regulated and reliable online FX and CFD broker. To Trade Forex Online, you can check ADSS.com. You can get a better idea of the stop-loss order mechanism in the FX market. Stop loss is designed to reduce a trader’s loss on a position. Many traders connect stop-loss with a long position, but you can even apply it in a short position.
Why use stop-loss order?
Emotions get eliminated
Stop Loss management is a tricky concept in FX trading. It effectively closes the trading positions, when the losses reach a predetermined level. They are an efficient way to halt trades during a severe dip, where profitability return is impossible. Some investors find it emotionally hard to accept that they made a wrong decision, but withdrawing your vanity can reduce the losses.
Loss gets reduced
There are no hard rules when you place a stop order but traders follow some globally accepted procedures. For example, day traders can set stops outside the traded currency pair’s daily price range. In this manner, if the movement goes against your prediction, the stop loss will protect the position. Swing traders can set stop loss further or 2 to 3 times larger than the normal daily trading range.
FX futures are unpredictable, even with s solid setup or information pointing to a strong trend every position entered is a risk. Even if the traders win 75% of their trading with common currency pairs, their money management skills are poor. Incorrect money management leads to disastrous outcome.
To avoid this, you must learn how to estimate stop loss. Beginners can choose the Forex Demo Account available on the ADSS trading platform. It will help them to handle their emotional trading. The fear of the unknown gets removed and unwanted risks get managed in a given position. It offers the trader to stay balanced during pressure for long-term success in the FX market.
List of stop-loss strategies
Stop & reverse
It includes a stop at a specific loss point along with a simultaneous enter into a new trade including a stop in opposite direction. It is a strategy that needs market expertise. All the brokers don’t accept this trading structure in one order. In the majority of cases, after you execute the first stop there is a need to implement the new order, which reverses the original order with a new stop in a new direction.
Harvesting stops & multiple stops
A few FX traders assume that if a stop loss is set, the market-makers will maneuver the market and harvest your stop to claim the profits. So, they put multiple stops to protect from what they assume to be unnecessary losses.
Multiple stops can help in sudden price movements in opposite direction towards your first or second stop and ultimately reverse. It means some trade portion still remains active.
If your position is tilting towards profiting, a trailing stop will move upwards with the increasing market price. The loss percentage you set remains the same as the market moves in your favor. If it suddenly moves against, the trailing stop that rose as your profit will protect the decline of the recent increases.