The forex market does not always move at the same frequency; rather, numerous unexpected changes may be discovered while trading in forex. Stop-loss is one of the few instruments that are available to traders to protect themselves from large losses in the forex market. Stop losses in forex occur in various shapes and sizes, as well as different ways of implementation. This article will go over the best stop loss strategy and the importance of stop losses in forex trading.
What is a Stop-loss?
A stop-loss is an instrument that brokers provide to minimize losses in volatile markets, which moves against the trade’s original direction. A stop-loss is a price that is set a certain number of pips away from the entry price. A stop-loss can be used in any forex trading strategy, whether long or short!
Why is a Stop-loss Order Important?
Stops are important for many reasons, but everything sums up to one; we can never know the future. Regardless of how great the setup is or how much information is pointing in the same direction, the market has no way of knowing what future currency prices will be, and each trade is a risk.
Best Stop-loss Strategy
There are different stop-loss strategies that may help traders improve their trading, but Trailing Stops is one that can substantially increase the efficiency of stop-loss and protect your profit. After a certain amount of profit, you can use a trailing stop. Trailing Stops are a type of trailing stop order in which the stop-loss price is based on a percentage rather than a single value. You must be wondering how it actually works!
This is How it Works
It works in both long and short order. For a long order, When the price of trade rises, the trailing stop rises with it, and when the price falls, the new stop-loss price stands at the level to which it was dragged. However, with Trailing Stop, an investor’s downside is automatically protected, while profits are locked in as the price rises to new highs. Trailing stops can be used in any traditional stop-loss order.
For better understanding, let’s go through the process with an example. Consider a currency pair with the following data:
|Last price at the time of setting trailing stop||$1.1050|
|Trailing amount||8 Pips|
|Immediate effective stop-loss value||$1.1002|
Your trailing value will climb to $1.1060 from your purchasing price, your stop value will remain at $1.1052 as your trailing amount is 8 pips. if the market price lowers to $1.1052 Your order will close automatically at that price. You protect your profit.
Finally, in order to be successful in the forex market, stop-loss orders and strategies involving them are essential. This must be done through thorough market research, which you can obtain for a low cost at megafxsignals.com.