Stop-loss is a risk management tool used in the forex market to limit losses in case of unfavorable price changes.
This order automatically closes a trade when the price of an asset reaches a set level, helping to protect capital from significant losses.
In the forex market, situations can change instantly due to news, economic data and other factors.
Even experienced market participants cannot always accurately predict the movement of currency pairs.
Without a stop loss, there is a risk of losing a significant part of your deposit when the market changes dramatically.
Forex trading often evokes strong emotions such as fear and greed.
Stop-loss helps to avoid impulsive decisions.
Identifying key support and resistance levels is one of the most popular methods of placing an order.
Place it behind significant levels where a trend change or strong price movement is likely.
One of the simplest methods of risk management is to set a Stop-loss based on a percentage of your deposit.
For example, if you are willing to risk only 2% of your deposit on each trade, you can calculate the size of the stop-loss based on the size of the trading position.
Setting a Stop-loss too close to the opening price can cause it to trigger on normal market fluctuations, not giving the trade a chance to develop.
Many people make the mistake of not setting an order in hopes of manually closing the trade when the situation worsens.
This is a dangerous approach that can lead to significant losses.
Day traders hold positions for one trading day, which requires a more flexible approach to the stop loss.
The order is usually placed based on technical levels such as nearby support and resistance levels, indicators (such as moving averages) or market volatility.
It is important to take into account market movements throughout the day to avoid unnecessary risk.
Stop-losses should not be set “at random”.
Regular market analysis using technical indicators, studying market news and data allows you to more accurately assess entry and exit points.
Volatility can vary depending on the time of day, important news or macroeconomic events.
In times of increased volatility, market participants can adjust their orders to wider levels to avoid accidental triggers.
Many trading platforms allow you to automate the setting of Stop-loss with the help of robots or Expert Advisors.
This can be useful for those who want to minimize the influence of human emotion on decision making.
Robots can automatically set orders based on pre-set parameters such as percentage of capital or technical indicators.
Stop-loss is one of the key tools for successful forex trading.
Without the competent use of an order, trading becomes a high-risk game where capital is exposed to unwarranted dangers.
Whether you are a beginner or an experienced trader, the proper use of stop-loss should be a mandatory part of your strategy.