The forex market is a very dynamic environment with a variety of aspects that need to be considered by a trader in implementing its strategy forex-.
Many important things to be aware sometimes make a trader to forget
things that are (considered) small, but it turned out to have a major
impact. One of the things often considered "small" it is stop-loss, which is when it can change your world. In learning forex this time, we will learn to better understand the "little guy" who turns out this great.
Stop-loss - his full name is the stop-loss order - can be a very useful tool, if you know how to use it. Let peeled together.
Is the stop-loss?
Stop-loss is actually placed order to close the open transactions with the aim of limiting the risk of loss. For example, you open a forex transaction: Buy 1 lot of the AUD / USD at 0.81400 price. As a strategy for limiting the risks in forex trading you are placing a stop-loss at the price of 0.81000.
This means that if the price then dropped to 0.81000, then your
transaction will be closed at the price of 0.81000 with a loss of $ 400.
The positives and negatives
No one wants to lose, but in trading inevitably you have to learn to deal with these risks. It has been mentioned before that you can limit the risk of loss that you might suffer by placing stop-loss.
The positive side of placing stop-loss is you do not have to constantly look at charts of price movements. Simply place the stop-loss level and the risk you are already constrained by itself, without requiring you to stare in front of your monitor. Even - extreme - you should turn off your computer and go shopping, play pool, or watch your favorite movies. Your risk is already limited by stop-loss.
But every thing has both positive and negative sides, as well as stop-loss.
It could happen a scenario like this: stop-loss that you place only "dicolek" by price movements, and then reversed and precisely meet your target profit. For example, in the example above mentioned transaction (Buy 1 lot of the AUD / USD at the price of 0.81400; stop-loss at 0.81000 price): after hitting 0.81000 price (stop-loss) turns then direct prices rebound and even reached 0.81800. Quite oppressive, huh?
But try to think like this: You NEVER know what will happen next. In other words, you - in fact anyone - never know for sure the next market movement. In forex trading all the possibilities can occur: the price may rebound, but ALSO CAN GO DOWN MOVEMENT so that your losses will be greater and forex strategies that you have painstakingly collated no longer useful. All open opportunities.
The question then is: if you can face greater losses than just minus $ 400?
Which is more painful: loss of $ 400 (according to your risk
tolerance), or a loss much greater because you do not limit your risk?
The most important thing is that the stop-loss allows a trader to immediately make a decision without any emotional involvement. People tend to "fall in love" in the transaction; he did not want to throw away the transaction despite mounting losses. Trader as it is always hope and expect the market will reverse direction. In fact, in anticipation, the risks it faces growing.
Placing a stop-loss rules
In forex trading, you have to - even MANDATORY - learn to apply the forex strategy that is necessary to limit the risks. All successful traders agree with this.
The key to minimize the possibility of a stop-loss "licked" by price movements is the placement of stop-loss technique itself. You should follow the signal in the time-frame that is not too short to avoid price movements suddenly. Put your stop-loss a few pips above the key resistance (if you are a sell position) or below key support (if you are a buy position). Technically, there is a method that teaches put around 100-200 pips (to quote five decimal). There are many methods of determining the resistance and support key, you just learn it.
Even more important is placing a stop-loss in accordance with the risk tolerance that you have defined in the trading plan. For example, you have a capital of $ 10,000 and allocating risk sebsar 5% per transaction, then your stop-loss should be no more than $ 500.
Not just limiting losses
The origin of stop-loss is indeed intended to limit losses, as the name suggests. But in its development, stop-loss it can also be to let the advantage that you have acquired the potential to become even greater. How to?
The technique is called "trailing stop". In this case, the "stop-loss" no longer serve to limit losses, but "lock in" profits at some level. What kind of story?
Let us return to the example previously mentioned transaction. Assume you are doing forex trading and opening Buy AUD / USD at 0.81400 price. You have learned that you have to limit the risk, and as his forex- strategy you place a stop-loss at 0.81000.
It turned out that the price continues to rise; say up to 0.82000. At that level, you've gained floating profit (unrealized profit) amounted to $ 600 (conditions floating profit is already profit when your position, but the position has not been closed). In these conditions, instead of closing the transaction, you just move (termed amend) a stop-loss that had been located at 0.81000 to 0.81600.
Thus, if later the price dropped from 0.82000 to 0.81600, your position
will be closed in the range of 0.81600, with the result of a gain of $
200.
Conclusion
In forex trading, s top-loss is the easiest forex strategy but a very significant impact in your attempt to limit the risk. It is true that there are other ways such as switching or averaging, but all of them have side effects such as psychological burden is much greater.
While it is easy unfortunately many traders who "failed" to use it, whether it be to limit the risk and lock in profits. You should treat such a stop-loss
insurance premiums, where you never expect to use it, but when the risk
occurs, you stay calm because you know that your own safety.
Losing is not good, but more is not better if mounting losses suffered because not restricted. Tuh pain in the wallet ....
So, use stop-loss.