Get to know Forex Stop Loss and How to Determine it
Stop loss level is an important tool for all forex traders. Not only do they prevent traders from getting big losses when the market moves quickly against a position, it also allows trading to be more objective and profitable. Sharp and abrupt market movements, or just a trend that occurs when a trader can not close a position, can quickly make bigger losses and even result in an overall account value being negative. Stop loss use on any trading has two main ways:
Stop loss can be applied to forex trading by obtaining maximum losses, where traders determine in advance the value of the risk they want to apply in one position. This is known as a money stop and is usually based on the maximum percentage loss that a trading position can take (individual or whole). This stop loss is the most helpful in removing traders’ emotions in decision making during trading. The temptation to bear greater losses in the hope of a position to recover is something that all new traders experience. The ability to reduce these losses early, with the help of money stop allows future trading results to win more than the losing trading results.
Technical stop is used by more experienced traders to get out of trading positions when the technical chart fact is that trading has failed. Therefore, this stop loss occupies strategic levels in the market indicating that the initial assumption for trading is no longer valid and the trading signal is not going to the expected result. Technical stop loss is very useful for technical traders who use the support and resistance area to get high trading opportunities. Then, by placing this stop loss outside the support or resistance area, pivot point or technical chart pattern, trader can avoid subjective decision.
Keep in mind that a technical stop is often done away from the entry price to ensure there is a price space to ‘breathe’ and also to ensure that the trading setup has failed. Losses with technical stop may be bigger than money stop.