How to be Safe in Forex Trading: Using Stop Loss and Take Profit As it is always said that the Forex Trading Market is random, you might have done your Technical analysis very carefully and checked the news as well but still the market went in the opposite direction of your trade.
It could also happen when you are in a profitable trade; the market reached your target point and then trailed the other way. You might have been away from your system for just a moment or just to grab your cup of coffee and your Profit can turn into Loss.
To safeguard yourself from these situations it is always good to use Stop Loss and Take profit limits when you place your Forex Trading Orders.
Stop Loss: It is the price limit you set for your order to close when the market is moving against you. It helps you to save your account from getting zero in case market shows a strong move.
Take Profit: It the price limits you set to exit a trade when your expected profit level is reached. This helps you in securing your profits in case the market reaches your expected level and then turns around in the opposite direction.
Trailing Stop: It is the stop Loss limit which keeps on moving with the price move. If the price moves in your favour then your stop loss limit also moves in the same direction.
Well that is not a problem you actually realised it and closed your trade before making any further loss. But in case you suddenly missed out that point of realisation because you were not in front of your system and the market spiked making your account balance to zero.
The market moves 20 pips in your favour and then moves in the other direction, now with the market moving 20 pips your Stop Loss also moves 20 pips i.e. your original Stop Loss which you set 10 pips below the entry price is now 10 pips above your entry.
In this case if your stop Loss is hit still you will be making a 10 pips profit in your trade. This is how a trailing stop helps you in making profits even if your Take Profit target is not reached.
Sometimes you might notice that the market is ranging and it goes to a certain point and then comes back in the direction you want to Trade, then it is advised to place your Stop Loss Limit below that point from which the market turns in your direction.
I would again say that the markets are random and can always prove you wrong so always be careful and use the Stop Loss and Take Profit with your order to prevent your account from sweeping out and safeguard your profits.
At least this allows enjoying your favourite cup of coffee or spending time with your family or other affairs when your Forex Trading positions are open.