Choosing Your Stop Losses and Stopping Out
How to place stop losses in Forex
Have you been having losses? Are you taking them at the right places? One of the worst things a trader faces in day to day trades is taking losses, it is an important part of any Forex traders strategy. It sucks, but its always a good idea to choose your exits in Forex. The biggest mistake newbie traders do is ignoring their stop losses, which usually leads to high draw-downs and these draw-downs can damage your Forex account badly. The whole thing about how to place stop losses in Forex is to choose them at proper support and resistance levels so if the market changes levels you can wait for an opportunity to get back in the trade and recover your losses. This way you minimize your losses and live to trade another day and hopefully make profit in the long run.
Whenever the market is ranging in a certain area and it extends its movement in a certain direction above or below the range, it’s normally a signal that the market is ready to move farther in that direction. These are places where if you are in a trade you should consider exiting it if its in the wrong direction. Like I’ve mentioned before, you should always have a trade idea outlining your whole plan, where to get in, where to get out, how to place your stop losses and where to take profit, everything should be decided beforehand.
Do you trade news events in Forex? If you’re trading a news event, be ready to get out if the news is bad, don’t hold on to your trade if it’s going in the wrong direction, it could be useful to use tight limits but sometimes with news, the rampant fluctuation could just take you out either way, you have to be very quick with these trades. Always try to take some profit when you get a decent movement, but try to practice leaving some of your position open with your stops at break-even to try catching some more movement. If you’ve gotten in on a news event at a good price it may be possible that you’ve gotten in on a new trend and that could mean a pretty good movement in your favor, which means huge profits!
There are some traders that manage their trades differently, they place their stops at places farther off in the market but intend to close their trades manually if the market reaches a certain point to see if it will reverse right there, since sometimes due to low liquidity we see a lot of stop taking action, though this is not normal practice and I would not suggest for you to do this. This can be done only while in front of the trading screen and normally switching the stops back to their original places when not monitoring the market. This is a very risky way to trade Forex, any news event can trigger massive movements which can result in heavy losses.
Forex traders should keep in mind that stop losses greatly help maintain risk and reward ratios and must be maintained for the safety of their own accounts. Forex trading is serious and risky business and avoiding your getting out of losing trades could really give you severe heavy losses. Always try to keep your profitable trades running and shutting off your negative trades at a minimum loss.