Stop Losses in Forex Trading
Index 1. Stop Losses in Forex Trading 2. Types of Stop-loss
Stop Losses in Forex Trading The Stop Losses function is a valuable tool to safeguard
the value of foreign currency trades. It is especially true when the price of the forex pair starts
to move into negative territory. You simply set the stop-loss level, which determines the
most you can lose on position if the price moves against you.
ď‚— You should bear in mind that the stop-losses can work
for you or against you in the online trading. ď‚— While they protect against sudden movements in the
price, they can result in fear based trading which is equally detrimental.
ď‚— If you decide to maintain the narrow stop-losses and collect
on winning trades too early, this will result in the incremental wins and losses. ď‚— And there will be a loss of overall trading activity.
Types of Stop-Loss ď‚— If you are wondering how stop-loss can help you while
you are trading, it is a good idea to understand the several different stop-loss tools and techniques. 1. Average True Range ď‚— This stop-loss technique is used in many charting packages, and it factors volatility into the price of tradable instruments.
2. Trailing Stop ď‚— It is possible to secure your profit while limiting your risk, by using a trailing stop. ď‚— It is a special type of stop-loss adjusts your stop level
automatically when your position runs into profit, to lock in your gains.
ď‚— As the price of the tradable instrument rises, so too does the
stop-loss. ď‚— But when the price falls beyond the stop levels your position
is closed automatically as with a normal stop loss.
3. Guaranteed Stops ď‚— This stop-loss allows you to limit the risk on trades even when market gaps occur. ď‚— A Guaranteed Stop always represents the maximum that you
can lose on a position, and there is a small premium for the absolute risk protection.
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