Trading System P/L % Profit Dealings Success % Weeks Users
SignalKING 588.78% $47,635.66 17378 47.6% 316 270 Invest
SignalGold 192.51% $9,625.48 667 59.37% 38 238 Invest
SignalMAX 523.59% $76,046.14 12184 69.74% 169 209 Invest

Stoploss and Takeprofit! Risk-Free Forex Trading Secrets!

Stoploss and Takeprofit! Risk-Free Forex Trading Secrets!
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Hey, buddies, it's John Foster. It's not surprising that forex has many risks for any trader. In contrast to the option exchange, the loss here is not fixed, so you can even lose everything if the chart moves too sharply. And how to insure your risks, if a trader cannot leave the terminal waiting for abrupt closing a fail order? It is possible with special tools. They are StopLoss and TakeProfit. You'll further get known about what they are and how to use them. I will also tell you about the Safe Rule - one of professional traders' rules letting you cut losses.

Contents:

1.What Is a StopLoss?
2.When to Use StopLosses?
3.Where to Set a StopLoss?
4.What Is a TakeProfit?
5.When to Use TakeProfits?
6.Where to Set a TakeProfit?
7.Expected Value!
8.StopLosses and TakeProfits: How to Work with Them? The Safe Rule!
9.Finishing!

What Is a StopLoss?

StopLoss is your terminal's tool, allowing to close a bad order at the preferred level. For instance, the price of an asset is 100 points. You buy it and set a StopLoss at 95 points. If the price reaches this level, the order will be closed automatically. You will suffer fixed losses - insured from bigger ones.

You can move your StopLoss while trading. Return to the previous example. If the price goes up and reaches 110 points, you can move the StopLoss to the 100-point level, thus, your order will be in the breakeven, and you can't lose a cent with it.

When to Use StopLosses?

All pros yell you must always use StopLosses - I absolutely agree. Without limiting potential losses, you are likely to waste your deposit with a regular news against you. You must realize never a one professional trader can predict everything - they don't know for sure there is a fall or a jump of the chart incoming. To save yourself from that, use StopLosses. It mostly suits these situations:

  1. The market moves very rapidly, so price changes much for little time. An impulse against your order can occur. You must set a stop here, otherwise you can have your deposit wasted at once.
  2. Novices are often doubt their decisions. It's ordinary - experience comes with time. The only thing is to save the deposit - so, use stops.
  3. If you deal with an inaccurate strategy, giving just 5-7 right signals out of 10, it's recommended to work with a StopLoss to limit losses. Only with that, you can count on average profitability. A StopLoss is always the opportunity to insure your money and restrict losses, but do not overdo. If you place a Stop in less than 10 points from the order, the chart can touch it with a slight impulse, and then go toward your bet. Prices never move in one direction - so, having opened an order, you usually lose firstly, but then the chart turns. For instance, you've predicted a new trend and were right. But the current trend finishes its movement, and the price can pass 10-15 pips against you, and then turn. Your StopLoss must insure that, standing not very close to the order.

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Where to Set a StopLoss?

Usually, in any algorithm, it must be mentioned at which level to set a Stop. If it isn't, there are ordinary StopLosses for short-term trading (orders up to 12 hours), middle-term (up to 5 days) and long-term (more than 5 days).

Here are these StopLosses:

  • For scalping (short-term trading) - 10-15 points from the order;
  • For middle-term trading - 25-50 points from the order;
  • For long-term trading (orders up to one month) - 50-100 points from the order;
  • For long-term trading (orders longer than one month) - 100-300 points from the order.

Take a look that the size of a point can be differed by brokers. For better understanding, a point is the smallest movement of the price noticed in the chart. These sizes differ because some brokers mark the asset price with 4 digits, others - with 5. So, a point of former ones is equal to 10 points of latter ones. 4-digital system is traditional, that's why I was giving numbers in it. And if your terminal use 5 digits, multiply all values by 10. For example, in short-term trading, set  your Stop at 100-150 points.

What Is a TakeProfit?

A TakeProfit is opposite to a StopLoss. They can be used together, though. TakeProfits are also set at a specific level, but this time, toward your forecast. Once the price reaches this level, the order is closed in profit. So, if a StopLoss limits losses, a TakeProfit limits profits. Nevertheless, this tool is also useful, allowing to fix the profit and take no risks, waiting for more movement toward your forecast.

When to Use TakeProfits?

Experts' opinions differ strongly here. In most cases, a TakeProfits is considered unnecessary (in contrast to StopLosses), but I recommend using it.

Don't be avid waiting for market's permanent moving toward you. Once you gain according to your strategy, close the order. Greedy traders are called "pigs" - so naive that overtime even good orders and eventually lose their money.

You should use TakeProfits in following situations:

  1. When the market is unstable and there is no distinct trend. And if price goes toward you, it can probably turn, so close the order in profit, waiting for a new strategical signal.
  2. TakeProfits are recommended to use when there is a risk of trend-change. If you trade with Fibonacci lines, for example, a TakeProfit is as essential for you, as a StopLoss. As with Stops, TakeProfits must be set correctly and not overdone. It's pointless to gain 5 points per order.

Where to Set a TakeProfit?

As with a StopLoss, there are standard patterns for setting up TakeProfits, if it's not mentioned in your strategy.

Here are they:

  • For scalpers - 15-25 points from the order;
  • For middle-term trading - 35-75 point from the order;
  • For long-term trading - none required or in more than 300 points from the order.

Expected Value!

So, questions "What is a StopLoss" and "What is a TakeProfit" are done, so let's talk about the so called expected value.

It's traditionally considered that a StopLoss must be smaller than a TakeProfit, otherwise trading is useless. But it's not always right - sometimes a Stop can be bigger if it's pointed in your strategy. In fact, different strategies' accuracy (right signals to all) can differ. If it's 75% accurate, StopLosses can exceed TakeProfits - that's ok. If it's not mentioned about them, you should follow the traditional rule, otherwise - do as the strategy says.stoploss and takeprofit-3

StopLosses and TakeProfits: How to Work with Them? The Safe Rule!

Another pros' secret allowing risk-free trading. They use so called Safe Rule. It's quite simple in using, but very efficient.

Here's the algorithm:

  1. When the strategy gives a signal, enter the market with 2 positions - you can divide the lot between them.
  2. StopLosses must be set in 10-15 points from the order, unless another way is specified in the strategy. TakeProfit for the first position should be placed as far as the StopLoss stands. Experience shows that if a price covers these 15 points, the first order will close in profit, and even the chart turns back and breaks second order's StopLoss, you lose nothing. Actually, closing the first order, you move trading to the breakeven; the worst you will have is no-profit result, without a risk of losing anything.
  3. When the first order is closed, you may move the Stop of the second one to the breakeven (the level you entered at). So, you will gain for sure, because even if the second order closes at zero profit, you'll still have profits from the first. Just a simple example. You buy EUR/USD at 1.1250 with two positions 1 lot each. Stops are at 1.1235, and the TakeProfit for the first order is at 1.1265. The chart goes up, reaches first order's TakeProfit and the position is closed with 15-points profit. Then move your Stop for the second order to the breakeven (entrance level - 1.1250). The chart turns back, reaches this level and closes this position at the breakeven.  However, a trader still has 15-points profit can could suffer losses without the Safe Rule.

Finishing

StopLosses and TakeProfits insure you from wasting the deposit and losing everything from a false signal. Losses are the essential part of trading, but, though, if they're limited and fixed, profits will always increase. If you're serious about gaining at forex, choose the best broker, and if you like options, start with reading our "Binary Options Trading! Step-By-Step Instruction!"

I wish you great profits and big luck!

Best Regards, John Foster.

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