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.
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?
8.StopLosses and TakeProfits: How to Work with Them? The Safe Rule!
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.
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:
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:
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.
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.
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:
As with a StopLoss, there are standard patterns for setting up TakeProfits, if it's not mentioned in your strategy.
Here are they:
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.
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:
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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