Stop loss is calculated from the entry point. How to set stop loss and take profit correctly in Forex? Technical aspects

I think every trader knows how important it is to choose the right place to set a stop loss. In this article we will discuss why wider stop losses lead to better trading results than tighter ones.

Many traders can successfully call the direction of the market, however, they often exit their trades too early, sometimes right before the market turns in the right direction. Sounds familiar???

The main reason why this happens is that traders place their stop losses too tight or too close to the current market price.

When it comes to Stop loss, size matters...

Before discussing wide stop losses, it should be noted that tight stop losses are also used in some market scenarios and forms of trading ( for example, scalping, intraday..) simply must be used.

But now, let's focus on trading on daily charts, when a trade can be opened over several days or even weeks (positional trading). Niall Fuller considers this type of trading to be the most profitable.

Let's start the discussion by saying that markets move within an average daily range (for chart D1) or a weekly range (for chart W1). You can determine this range using the ATR indicator for the ]]> MetaTrader ]]> platform.

Also, to make it easier to find the average daily range, you can use the ADR indicator or a special ATR indicator in points (you can download it).

To trade on a daily or weekly chart, a trader needs to know the ATR range in order to set a stop loss outside it. Of course, there is no point in setting a stop within a range, as there is a risk of being knocked out of the market simply due to normal price fluctuations due to market volatility.

Let's look at an example graph:

1. The ATR value is determined several days in advance, usually 14. Thus, when opening a trade, you need to ensure that the stop loss value in points is greater than the ATR value at the time of entry. In this case, the ATR was about 100 points at the time of entering a buy trade using the price action pin bar signal at point 2.

2. If you look at the pin bar candle at point 2, the range will be only 75 pips. But many traders will make a big mistake here by setting the stop loss size at 75 points or below the pin bar low. But it is already known that the average range is 100 points. This means you should set a stop loss of about 100 or even 150 points.

3. At point 3 you can see what happened next. A wider stop loss than usual would allow the trade to profit despite the price falling below the tail of the pin bar. And, if the stop had been placed exactly there (at the low of the pin bar), then the transaction would have been closed. This is the difference between winners and losers in the Forex market.

Very good, strong signals appear on the daily chart, but they take time to work. So it usually takes a long time for a trade to start working in our favor. And if the stop loss is too tight, we risk getting out of the trade before the signal starts to pay off. Surely you have seen how the market consolidates, moves up and down for several days or weeks, or even moves to the place where the stop loss was set, and then quickly turns in the opposite direction?

This situation happens quite often. Every trader will naturally want to avoid exiting a trade early with a stop loss.

Therefore, it is very important to install stop loss outside the zones or levels on the chart from which professionals (banks, large players) may try to displace ordinary traders. This will show up on the chart as sharp moves below the highs/lows of candlestick tails or key price levels.

For example, we can often see the price go a little behind the tail of a nice clean price action signal and take out our stop losses before starting to move in the direction of this signal.

Look at the example below. Notice the pin bar and the downward price move a few days later that took many traders out of their trades just before the price started to rise again. For this reason, it is good to set a stop loss outside of the ATR (as mentioned above) a safe distance beyond the tail of the pin bar, rather than just one pip above or below.

Traders often place stop losses in arbitrary places on the chart just for the sake of having them, without any real reason for setting them. This is bad. Stop loss should always be based on logic and strategy, i.e. it is good to place stops in areas of zones or chart levels that negate the trading signal. For example, above or below the highs or lows of a signal, or above a key chart level such as horizontal resistance, a swing point, or even a moving average.

A wider stop loss will allow you to stay in a good trade. You won't be knocked out of the market before the price starts moving in the right direction. Give the market a chance to give the correct exit from the trade, and not just close at an arbitrary point.

First, price needs to be given room to move.

Secondly, since we have a lot of room to develop the trade, we may notice the emergence of a contrarian signal or price action pattern. And then decide whether to exit the transaction with less losses or even with profits.

In the example below, the ATR indicator is set on the chart. At the time the trade was opened, the ATR was approximately 100 points. As mentioned above, you need to set a stop loss outside the ATR, which means that in this case the stop loss would be more than 100 points and we would remain in the trade even after the price dropped below the low pin bar. Then the price went higher and the deal could be closed with a profit. There was even a counter-trend pin bar that could be used as an obvious exit point.

There is a myth that the wider the stop loss, the greater the loss. Many new traders think this way because they do not understand the concept of “position size.” Set up the position size for the transaction and adjust the stop loss so that its size is constant - be it a cash equivalent or a percentage of the deposit.

Conclusion.

I hope today’s material has helped you understand how important it is to set wider stop losses rather than tight ones. Stop loss is an important component of successful trading. Traders who pay more attention to stop losses will be more successful than those who do not pay much attention to them.

Perhaps the most useful aspect of wider stops is that they allow time for a trade to develop. Most traders usually do not make mistakes in choosing the direction of market movement, but they set the stop loss incorrectly.

Any trader who has worked for a long period of time will say that for successful trading it is important not only to enter a trade, but also to manage the trade. There is nothing worse than making a correct market analysis, but setting a stop loss incorrectly and being knocked out of the trade, and then watching the price move in the right direction.

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Trading on the stock exchange is a very risky business, but with the right approach you can cut your losses. In this case, a stop order will help the trader. With its help, trading will always be conscious and if the entry is incorrect, the position will be automatically closed.

What is stop loss

Stock trading is the purchase or sale of stocks, securities or futures. The whole process resembles a regular market. The speculator's task is to buy goods cheaper and sell them at a higher price, or in the reverse order. Only in the stock market, the trader does not set the price, he only decides whether to enter a position at the price that the market provides at the moment.

For example - You need to buy a share at a price of 50, to make good money it is advisable to sell it more expensive - at 70. A trader enters a position, the price gradually begins to rise, and profits flow. But the opposite situation also happens: after buying an asset at 50, it begins to fall in price. The best way to protect your deposit is to place a stop order. How to set a stop loss in this case, for example, you bought at 50, set a stop order at a price of 45. That’s the whole task, even if the market goes down, touching the 45 mark, you will be thrown out of the deal.

Thus, the market makes you understand that you are wrong. If there is no stop order, everything may end sadly. Stupid expectations - that the price will now turn around and go in your direction - are unlikely. But bringing the deposit to the very bottom, this situation happens more often.
Conclusion – trading without stop loss is dangerous and risky.

Where should a stop loss be placed?

Often traders are offended by the market; they have the impression that they are being watched. After all, no matter where they put a stop loss, the market will knock it out and then go in the right direction. All this is, of course, nonsense, the only reason for it all is that the stop order is placed in the wrong place.

Stops need to be placed where it would not be profitable for the manicurer to remove them. You should not place a stop behind the nearest visual level, in which case it will be demolished with a 90% probability. A little hint - wait until the market makes a provocation, stops everyone and returns to pro-trading; people also call this a false breakout. For such provocations and breakdowns, it is much wiser to hide your stops. The picture below shows an example of setting a stop for provocation.

How to set stop loss sideways

The market spends most of its time flat; trading flats is a little easier than the trend. Trading is carried out from the lower border to the upper one. Now let's look at the situation of how to place a stop loss in a sideways position.

Before you start trading, define clear boundaries of the sideways trend; you must correctly determine the levels of support and resistance. For example, you decided to trade from the lower border to the upper one and identified a strong support level. There is no need to immediately place an order to enter a position, because this is how most of the crowd will act. Wait until the market makes a provocation (false breakout) and goes slightly below the support level, but with a mandatory sharp return to sideways.

After this, you can safely trade the previously selected support level, and hide the stop order behind a false takeout. The effect will be this - the market has stopped everyone who hid their stops behind the visual level, and refueled for a trip to the upper border of the sideways trend. Pay attention to the picture below.

How to set a stop loss in a trend

Now let's look at the situation of how to set a stop loss in a trend. When the market stays sideways for a long time, it begins to exit a certain zone followed by a trend. The tren is accompanied by a rise or fall in price and small consolidations. In each of them you can find an entry point with a stop, and you can also move the stop loss for each consolidation. For example, you have determined that there will now be an exit from the sideways trend, and a trend will begin.

You entered a position at the very beginning of the trend, then watch. The price begins to grow in small zones, and then the price goes beyond the previous zone; in this case, the trader can tighten the stop for each zone. Below is an example in the picture.

When can you set a stop loss without loss?

A very common thing is to move the stop to no loss when it is not necessary. In general, if you are trading one contract, it is advisable to write either a stop or a take in your algorithm. This would be more correct, but it’s a different matter when trading occurs with several horses.

And so – you entered a position from a good support level with three lots, and before entering you have already identified the nearest take targets. As soon as the price reaches the exit point, be sure to dump half of the position. And for the rest, you can sit and wait for distant targets, while you can move the stop to without loss.

Do not try to transfer to a no-loss position immediately after a small rebound, because in most cases the price will return to the entry point and you will simply be thrown out of the position.

Benefits of Stop Loss

1. By trading with a stop, you cut off your losses
2. When trading with a stop, you quickly understand that you are wrong and automatically exit the position
3. When trading with a stop, you are emotionally calm, because you yourself have set in advance the amount you can lose.
4. Remember - a trader in the stock market can only control one thing 100% - his losses using a stop loss. The market does the rest.

A cryptocurrency analyst calling himself CryptoCred and hiding behind a photograph of the American economist of the first half of the 20th century, Hyman Minsky, talks about trading, warning that he does not pretend to be a financial advisor. Today we will talk about how to avoid mistakes when setting stop losses. The original material was published on Medium.

To begin with, let us clarify that a stop loss order is an exchange order to close a position when the price reaches a certain value or percentage in order to limit your losses in the event that the chosen strategy is unsuccessful.

The use of stop loss orders is an essential element of risk management. That's why in any (sensible) books, webinars, guides, etc. emphasizes the importance of using stop losses in trading.

At the same time, paradoxically, incorrect placement and management of stop losses can cost you hefty losses.

It often happens this way: during technical analysis using Japanese candlesticks, their shadow causes your stop to be executed, you exit the trade, and meanwhile the price continues to move in the direction in which you expected, but without your participation.

In this article, I will discuss the five most common stop loss setting and management mistakes that you should avoid.

Mistake 1: not setting a stop/loss order in advance

You must in advance select the exit price level and set a stop loss. Of course, the same goes for defining your entry point and your goals.

Seeing fluctuations in profits/losses during the trading process, you will cling to any excuse to stay in the market (including to your detriment).

The advantage of determining the stop point before opening trade is that it eliminates the emotional factor when making a decision, since you are not yet risking your capital. You just look at the price fluctuation chart.

In addition, if you have not determined your stop level in advance and the market begins to move strongly against you, showing a large rise in the shadows of the Japanese candlesticks, then there is a much higher likelihood that you will begin to sell your market positions without taking into account the possible correctness of your strategy.

There is no point in setting stops “depending on the situation”: evaluate where you might be wrong before opening a position.

Mistake 2: Placing Stops Based on Arbitrary Data

The market doesn't care about your risk/reward ratio (R:R), some magical 2% of your entry point, or other market-meaning numbers.

One of the biggest mistakes you can make is trying to fit the market to your strategy when you should be doing the opposite: building your strategy to fit the market.

It would be very convenient if there were magic ratios or formulas based on which you can confidently set a stop loss. However, as far as I know, such relationships and formulas do not exist.

Therefore, when it comes to deciding where to place your stop, you should base it on technical analysis. Setting a stop loss cannot be determined by some price level that gives you a certain percentage or desired R:R ratio. This is not a market approach.

Mistake 3: Moving the stop to breakeven/margin at the first opportunity

The purpose of placing a stop, as already stated, is to protect you if your strategy does not work, but a stop loss will not make your trade risk-free when it goes in your favor. This is a logical consequence of the argument that stop placement should be based on the results of technical analysis.

Most traders will agree with this, but will not hesitate to move their stop to breakeven/margin if the trade goes in their favor.

This is a controversial decision. Moving the stop to the break-even/margin level is similar to placing a random stop based on random factors (see point 2).

The state of the market does not depend on your decision about the entry point and break-even level. The moment you arbitrarily move your stop to a “safe” level, you abandon the analytical approach (which, of course, does not exclude the possibility of your break coincidentally with the level determined by technical analysis).

The market doesn't owe you anything.

Why abandon or change your trading strategy just because it is preventing you from reaching your break-even point or small profit?

You need to ask yourself: if I did not have a position and the price moved to my chosen breakeven/margin stop point, would I consider that price to be an appropriate level to cancel?

If you answer “no” (as is often the case), you are indicating that exiting the trade at this point is a spontaneous decision.

On the contrary, your stop loss should be placed exactly at the point where your strategy will not work at all. When you make an entry, you must decide and tell yourself: “If the price goes above/below point X, then my reasons for entering the trade have been refuted by the market and, therefore, my strategy is wrong.”

If you are not willing to do so, you should not enter into a trade.

Stick to your strategy, have faith in your original trading plan and let the market prove you wrong, but set your stop loss.

Thoughtless movement towards a break is thoughtless trading and abandonment of your own technical analysis.

Mistake 4: placing a stop in the liquidity zone

There are certain price structures where it tends to reach a level of liquidity before the market moves.

The main thing is not to place a stop loss directly above/below the indicators swing highs/lows And clean equal highs/lows, since there is a high probability that the market will pass through these values ​​​​before changing direction. You can test yourself this way: look at the chart of the market you are trading and note the main inflection points, indicators high/lows And clean equal highs/lows.

In most cases, you will see that when trading, price tends to move through these points before turning around and going in the opposite direction. Traders with stops above or below these points will be thrown out of the market before it continues to move in the direction they expected, but without them.

If price exceeds old highs/lows before reversing, this may affect liquidity or lead to stop hunting, when many traders simultaneously set a stop loss at the same level, which leads to a sharp drop or rise in price.

How to protect yourself from the effect stop hunting?

This is not easy to do, but if you can do it, the result will be achieved in any market, especially if you use mostly self-executing orders and do not monitor price changes in real time.

My advice is: don't place your feet in obvious places. Sharp changes in price charts are noticeable and often serve as a guide for those placing stop orders in pursuit of liquidity.

So the best you can do is to leave a gap between your order level and such points. This will allow you to remain in the market even if the price goes through high/low. Leave some space (especially if your market price is jumping) and, of course, do not place stops above/below the shadow of the Japanese candlestick.

Mistake 5: Never Move Your Stop Loss

We have already learned that the purpose of setting a stop loss is to protect your account if the trading idea turns out to be wrong. However, if the market movement shows that your trading idea was correct and it is moving in the expected direction, a stop loss can be used to maintain the R:R as the price moves towards the intended target.

You may ask me: “Isn’t there a contradiction here? You just convinced us to believe in our stop and forbade us to move it, and now you demand the opposite?”

Yes, everything is correct, it is so, but there is no contradiction in this.

If you thoughtlessly move your stop to the breakeven/margin point, then this is a spontaneous decision that is not based on market analysis (which it will certainly prove to you).

If you move your stop in the direction that the market is moving, your decision will be based on technical analysis, and this is a good way to keep your R:R high as the price moves in the direction of your target.

The difference is obvious. The first decision was an emotional one, based on a desire to feel safe. The second solution is to take proactive action based on analysis to maintain a good R:R as price moves in the desired direction.

For example, there is a tradition to move a stop if the candles begin to rise in the expected direction as an indication that buyers/sellers are active and the price level should not return below/above this level. This is the opposite of moving towards the break-even/margin point as the price moves away from the entry point.

So let's get to the point.

By moving the stop I mean it moves up (if you are long) or down (if you are short) as the price moves towards your target.

The reason to do this is quite simple: the market's goal and your goal may be different, and by placing your stop, you are protecting your winning strategy in case it doesn't work out or even turns into a losing one.

Let's look at an example:

When entering the trade, the R:R ratio was 2:1 (or 2R). When the price starts to fall, you set a stop to protect yourself. The price comes close to your target, but does not reach it and begins to go up (blue circle). In this area (blue circle) you can recalculate your R:R to see if you're being smart.

As you can see from the example, if you don't move your stop, you risk putting 1.8R back into the market for a fee of 0.2R. In other words, if you don't move your stop, your R:R will become disproportionately low if the price misses your target and starts to rise, rendering your stop useless.

This is not “free trade”, you are simply giving your money to the market.

As we have seen, the market does not have to go where you want it to go. Moving your stop will give you the opportunity to make money even when you are wrong in your strategy (which is most often the case).

Conclusion

Don't be arrogant: It's stupid to screw up a trade just because you want your expectations to come true. The market doesn't owe you anything and doesn't care what you want.

Be dynamic by using stops when the trade is in progress; Maintain an acceptable R:R while trading. You can also make money when the market changes direction.

Read other materials from CryptoCred:

I have already shown many strategies and concepts for trading entries and exits. Today we will discuss one trading component that is an integral part of every successful Forex trading strategy. This is the stop loss that you need to use to protect every trade you make in the market.

I will dedicate this article to exploring this important element and how you should use it to manage your risk in the foreign exchange market.

What is Stop Loss?

A stop loss is an order that you add to your trading position during or after you begin your trade. Traders use a stop loss to request an automatic exit from a trade when the price reaches a certain level. Thus, if moves against your trade, your position will be automatically closed upon reaching a predetermined specified level.

Imagine that you buy EUR/USD at $1.1500 on the assumption that the pair will rise in value. Yes, but no one and nothing can guarantee you that the price will actually increase according to your forecast, right? Therefore, you would want to protect this trade with a Stop Loss order. If you place a stop loss below the market at $1.1470, this means that your trade will be automatically closed if the price drops to $1.1470. Thus, a Stop Loss order ensures that your loss in the event of an unfavorable movement will be theoretically limited to 30 pips (1.1500 - 1.1470).

Types of Stop Loss

There are two main types of Stop Loss orders. They include a hard stop and a trailing stop. We will now discuss each of them separately.

Fixed Stop Loss Order

Fixed (Hard) Stop Loss is a stop order in its simplest form. You place your order at a certain level and your trade is automatically closed at the market price when that stop loss level is reached by the price action. Nothing else happens. Hard Stop Loss are usually used to contain the risk of a losing trade.

Trailing stop loss

Trailing Stop Loss is slightly different from the standard one. A trailing stop remains in place if price action moves against you, just like a Hard Stop Loss. However, if the price moves in your favor, the Stop Loss gradually moves in the same direction. This is why this type of order is called a trailing stop because it follows the price action as the price moves in the intended direction.

Typically, when you use a Trailing Stop Loss order, you manually select the distance between the trailing stop and the price action. So, if you choose a stop of say 30 pips behind the price, it will follow the price action corresponding to that distance when the pair moves in your favor. But if the price moves against your trade, the trailing stop remains stationary.

A trailing stop is especially useful when you are chasing trending price movements. When a currency pair enters a trend, a trailing stop will follow the price action, and will be triggered when the trend begins to lose steam or changes direction. Thus, the Trailing Stop Loss order reduces the human factor when trading.

How to Place a Stop Loss Order in MetaTrader 4

Now that you are familiar with the basic types of stop loss orders, we will talk about placing these orders on one of the most widely used trading terminals - MetaTrader 4.

The first way you can place a Stop Loss order on the MT4 platform is by simulating when opening a new trade. When you decide to buy or sell a currency pair, you receive a pop-up to confirm the level you are entering at. In this window you will also see the Stop Loss field.

Simply enter the desired level and when the trade is confirmed, the stop loss will automatically appear on the chart.

Another way to place a stop on the MetaTrader 4 platform is by right-clicking on the chart or trade information in the order list at the bottom of the MT4 terminal. You should then select "Edit", which will take you to the same pop-up window that we talked about above.

Example of a stop loss order

Stop Loss is usually shown as a visual level on your chart. On the MT4 platform, the Stop Level is displayed as a dotted horizontal line. The following image shows how a stop order is displayed.

This chart shows a trading example of a long position on the GBP/USD pair. Once the resistance level (black line) is broken, you can buy GBP/USD on the assumption that the price will rise. A good place for your Stop Loss order would be the area below the previous big bottom on the chart (as shown in the image).

The red arrow shows the distance between your entry zone and your placed stop. This is what you risk in trading. The trade will be positive as long as the price is above your entry point and will be negative if the price is below your entry point. The Stop Loss order serves to limit your loss to the price of $1.40834, and your potential profit is theoretically unlimited.

Moving Stop Loss

If you use Hard Stop, you can always adjust it. This makes sense when you are trying to lock in a profit on a winning trade, but it is not a good idea when you are trying to handle a losing trade as its purpose is to limit risk.

Let's say you have the USD/JPY pair. You sell the pair on the assumption that the price will fall and you will make a profit. At the same time, you place a stop loss slightly above your entry point to protect your trade in case of an unexpected rally. After this, the price action quickly begins to fall. In this case, you can manually move your Stop Loss order down to block some of the profits made. Remember this, if you are Sell and your Stop Loss order is already below your entry point, then your trade is a guaranteed winner. The same applies if you Buy and move your Stop Loss order above your entry point.

Moving a stop loss is very easy on the MetaTrader 4 platform. You simply drag the line up or down with the left mouse button. When you select the desired location, you must release the mouse button and the Stop Loss order will move.

Stop loss placement rules

Now you know how to work with a Stop Loss order. But you're probably asking yourself, "How far should I set my stop loss?" For this reason, I will explain some basic Stop Loss rules and best practices.

Never risk more than 1-2% of your trading account. If you are a beginner, I would advise you to stick to the 1% risk. If you are a more experienced trader, you can use it a little more liberally by charging 2%.

Let's illustrate this concept with a basic calculation. Let's start with the 1 percent rule. What should you do to avoid risking more than 1% of your bankroll on a trade? To explain this, you have to consider several factors - account size, trading allocation and leverage.

Let's say your bankroll is $10,000 and you are using 50:1 leverage. This means that whatever amount you allocate to trading will be multiplied by 50 - the "credit" that is provided by your broker. Let's assume you will use 20% of your capital on the deal. This means that you will invest $2,000 in every trade you open. And after applying 50:1 leverage, $2,000 would have a purchasing power of 2,000 x 50 = $100,000.

To calculate the 1% risk on a $2,000 trade, which is used at the 50:1 level, you will first need to calculate 1% of your $10,000 capital: 10,000 x 0.01 = $100. This means that you should not risk more than $100 on your trade.

Your $2,000 buys $100,000 thanks to 50:1 leverage. Now you need to calculate the percentage that would be $100 of $100,000: 100/100,000 = 0.001, or 0.1%. This means your Stop Loss order is 0.1% of your starting price. If you buy EUR/USD at $1.0500, then you can place your stop loss at: 1.0500 x (1 - 0.001) = 1.0500 x 0.999 = 1.04895. When you set your Stop at $1.04895, it will be 0.1% below your starting price of $1.0500. This is 10.5 points below your starting level.

The calculation works the same with the 2% rule, but here you will need to calculate the 2% loss on $10,000 of capital, which is $200. You will then need to calculate the percentage of $200 on a $100,000 investment ($2,000 with 50:1 leverage): 200/100,000 = 0.002 or 0.2%. You then calculate 0.2% of your $1.0500 entry: 1.0500 x (1 - 0.002) = 1.0500 x 0.998 = 1.0479. This is the level at which you can place your stop loss, which is 21 pips below the $1.0500 mark. Obviously, the risk you take with the 2% rule is twice the risk you take with the 1% rule (we expected that, didn't we?): 10.5 pips risk versus 21 pips.

This example illustrates the basic concept, but traders should also look at decreasing position sizes and wider stops based on price action to achieve similar maximum percentage limits.

Trading with a stop

Let's now demonstrate the trading situation and how you can set up a Stop Loss order on the price chart.

The black horizontal line is the resistance area created by the two tops, which we have indicated in the image with two black arrows. In the red circle, you see the moment when price action breaks the resistance area upward, creating a bullish potential on the chart. This is the point where you have a good opportunity to buy USD/JPY on the assumption that the price will increase.

Now you need to place a Stop Loss order. A good place for your stop would be the bottom created before the breakout. If the price declines to this level, then the likelihood of an upward bullish move will be slightly lower. We mark the initial stop loss as “Stop Loss (1)”. This level is approximately 0.3% from our starting price.

Let's now use some risk management rules with the conditions we discussed above. If we have a trading account of $10,000 and we allocate no more than $2,000 from our trading account per trade and decide to use 50:1 leverage, then that means $2,000 is $100,000. We discussed that it is best not to risk more than 1-2% on a trade based on account size. According to calculations, the Stop should be 0.1-0.2% of the initial entry price, which is a maximum of $100-200 per trade. In our case, the stop is at 0.3%, which means we will be risking around $300 per trade, which is outside the scope of our Stop Loss strategy. Therefore, it is better to skip the trade or adjust the position size down to match the stop level distance.

Now back to trading, we note that the price begins to rise, and after the end of the impulse, the USD/JPY pair begins to correct. When the correction is completed, the pair begins a new bullish impulse. In this case, you can manually move the stop loss to a level below the first correction (Stop Loss 2). Your Stop now matches the resistance level that you used to enter the trade, meaning that you have moved your stop to breakeven and are not currently risking anything in the trade, at the same time you are still in the trade hoping to gain potential profit.

The price action again creates a new correction and begins a new bullish momentum. It's time to move the stop loss again. Drag the level up and adjust it below the created bottom on the chart (Stop Loss 3).

After this impulse ends, the price action decreases again. However, this time it is not a correction, but the beginning of a new reversal. The price action reaches the Stop and the trade is automatically closed with a positive result.

Risk of not using a Stop Order

Yes, you have the option not to use a Stop Loss order in your trading, but it is advisable to do so less often.

A currency pair can instantly move hundreds of pips. We have seen many cases where currency pairs create huge moves quickly. What to do if the movement is 5-10%? Are you willing to risk 5-10% of your capital multiplied by the amount of your leverage, which could effectively wipe you out? Can you afford to lose this amount in the blink of an eye? Some of you may be thinking, “This is unlikely to happen!” But those who have been in the forex market for a long time understand this situation better.

It was early 2015 when the Swiss National Bank announced negative interest rates of -0.75%. As a result, CHF dramatically outperformed everyone. This led to a 17.58% decline in the USD/CHF rate.

The easiest way to protect your trading account is to place Stop Loss orders on every trade. Now keep in mind that a Stop Loss order will not always completely protect you from any adverse actions or Black Swan events, but it is always better to protect yourself than to be simply "naked" in the market.

Conclusion

A Stop Loss is an additional order to your entry that is used to protect your trade from adverse price movements.

The stop order appears on the MT4 chart as a dotted horizontal level.

When the price reaches the Stop Loss order, the trade is automatically closed.

The distance between the Stop Loss order and your entry price is the amount you are risking.

There are two main types of Stop Loss orders:

• Hard Stop Loss – Stays on the chart and closes your trade in cases where the price reaches this predefined level.
• Trailing Stop - Remains stationary when price action moves against your trade and moves with price action when the Forex pair moves in your favor. You choose the distance between the stop and the price.

If you are not a fan of the trailing stop, you can manually move the Hard Stop as a trade management method.

Correctly adjusting your Stop Order will determine the maximum amount you risk in your Forex trading:

If you are a beginner, try not to risk more than 1% of your account on a single trade.
Try to limit your risk to 2% of your account if you are a more experienced trader.

You always have the option of not using a Stop Loss order in your trading. But if you choose not to use Stop, you could be risking your entire account on one trade.

Hello dear readers and blog guests! Since financial trading seems like an insurmountable barrier for many “dummies,” I suggest starting with the basics and expanding your knowledge of trading.

After all, everything is not so complicated, if not simple, and all exchange gurus began their journey by studying the elementary: what are stop loss and take profit?

The basis for concluding transactions on any exchange is the opening and closing of an agreement; all trading movements in the terminal are based on this.

To do this, the trader gives an order to the exchange intermediary to open a transaction in the form of a completed document (order), where he can open.

Next, the order accepted by the broker is processed, and your asset enters the market according to the parameters you specified. In addition, the dealer terminal provides the ability to manage and check the status of your transactions.

A market order is usually called an order from a dealer company to purchase or sell a financial asset according to the market rate.

To carry out transactions, the broker uses four groups of orders:

1. Market means to open a position on the market, that is, to buy at the offer price.
2. Deferred means placing an order at your own price and waiting for it to be executed.
3. Stop loss is set to limit losses if the price goes against us.
4. Take profit - set to take profit on the intended target.

Stop loss - what is it and what is it used with?

The English word “stop loss” translated into Russian means “to stop a loss.” In the language of stockbrokers, you can hear the phrase “caught a Moose” - this speaks more of an unsuccessful hunt than of a good catch.

A stop loss order is designed to control losses if the market rate moves in a direction that is unprofitable for the trader.

Stop loss is an automatic type of fixation of loss in a certain transaction. When your asset reaches a certain price, the order is closed automatically according to contractual parameters.

Stop Loss is issued only in conjunction with market or pending orders.

Stop loss is not always unprofitable; it can also be used to take profit. For example, if the trade is in the positive, you can drag this order with the condition of closing the position in the positive zone, that is, in the worst case scenario, your trade will close in the positive.

A stop order is placed in Quik by pressing F6 or right-clicking on a candle on the chart.

Next, we configure SL as shown in the figure below. For example, in this case, I put SL below the minimum on the chart - 115 rubles, in the price field I put SL below SL by 1 ruble - 114 rubles, that is, this is protection against slippage.

Since the price may sharply fall below 115 and SL may not work and the deal may not be closed. And taking into account slippage, the transaction will close for example at 114.55 rubles.

In the Forex market, as in the stock market, placing a stop order requires compliance with the following rules for successful trading:

• closing a loss-making operation at a set price;
• fixing a certain income when the exchange rate moves into the profit zone.

Stop loss is a necessary indicator of technical exchange activity, the correct application of which significantly reduces risks and increases the deposit.

How to calculate SL

Let me explain with an example, let’s say we have a deposit of 100,000 rubles; according to the strategy, we can lose no more than 2% of the deposit, that is, 100,000*2%=2000 rubles.

It follows that if we buy at 119 and set the stop at 115, i.e. in case of a bad game we will receive 119-115 = 4 rubles loss per share. Next, we will calculate the number of shares that can be purchased with this condition: 2000/4 = 500 shares, but since Gazprom is sold at 10 shares in 1 lot, we get 50 lots.

In total, we get the following: we can buy 500 shares for 119 rubles for the amount of 59,500 rubles, and if the stop loss is triggered, we will receive a loss of 2,000 rubles or 2% of our deposit.

Take profit and its possibilities

An order to a broker in the form of market execution to take profit is Take Profit, which translated from English means “to take profit.” Execution of this order leads to the complete completion of the trading operation.

Trailing stop in quick

When automatically moving a stop, a Trailing stop is used, this is when a stop order automatically moves behind the current price in a certain specified range.

For example, we bought at 119 rubles, set TP at 123 with an indent from max of 0.5 rubles and a protective spread of 0.2 rubles. If the price rises to 123, then the take will be activated, but will not close the deal until it falls from the maximum price by 0.5 rubles.

For example, the price rose to 124 and then fell by 0.4 rubles - the deal is not closed, since the indentation is 0.5 from the maximum. Then the price rose to 125 and fell by 0.5, then our transaction closes at a price of 125-0.5 and, taking into account the slippage of 20 kopecks, it will close in the range of 124.5 - 124.3. Our profit will be 124.5-119 = 5.5 rubles per share.

TP cannot be carried out without an open position or a setback; its issuance is directly related to open or market orders.

The operating principle of Take Profit financial conditions is identical to the operating principle of stop orders, where the cost of activation and the conditions for its implementation are indicated. A distinctive feature of these orders is their final discrepancy, as well as the technology for determining their profitability or deposit losses.

Installation of a TP order is provided for by the following nuances:

• mandatory setting of the price for activating an order to close an operation;
• acceptable (maximum, minimum) price for order execution.

Exchange orders SL and TP are stored on the broker terminal until the time specified by the trader (when filling an order, I always select until cancelled) and are executed automatically.

Take Profit Calculation

I usually calculate TP either 1:3, that is, the profit should be three times the expected loss, or we focus on the chart and set TP for the previous historical maximum.

Setting stop and profit

How to set SL and TP is learned in the first stages of getting to know the exchange structure. According to technical analysis, the correct placement of these orders directly depends on strong price levels.

In a trend, such boundaries are support and resistance, and in a flat, the price boundaries of the maximum and minimum peaks.

Simply put, it is recommended to place a stop order above price highs or lows, and it is better to withdraw profits when strong levels are reached.

Typically, setting and determining “moose” and profits is related to:

• with the terms of the trading strategy;
• with readings of indicators, advisors or graphical analysis;
• with a simple setting of a larger profit than loss.

In order not to get into trouble when placing orders, it is important to take into account one rather important detail, like.

For the convenience of trading in financial markets, trading in quik is used as one of the most common methods of conducting operations, which provides for automatic transactions for the purchase and sale of instruments online.

Many stock traders give preference to the Quik platform, neglecting the usual one, Metatrader, due to the fact that Quik provides greater access to futures and options in contract terms.

I also cannot help but say that there are all kinds of advisors, these are a kind of utilities, scripts that supposedly help you choose the right level. Personally, I didn’t use it and wasn’t interested in it. I recommend not focusing on this.

Benefits of using TP and SL

Using the orders necessary for trading activities, traders have a number of significant advantages of using them:

• simplicity and convenience in concluding transactions;
• control of losses and profits;
• carrying out transactions in the absence of the trader;
• use of advisors or robots in trading.

I think, friends, that the topic of setting profit and stop is covered and you understand how to determine and how to calculate the level of your losses and income using the indicated opportunities.

Watch the video to reinforce the material.

In conclusion, I would like to add that in trading, as in life, those who succeed are those who have a large amount of knowledge, skills and practice. My publications will help increase your knowledge and deposit.

That's all for me, if you have interesting thoughts and questions, write in the comments and subscribe to my blog - in return you will receive new, interesting materials.

Best regards, Ruslan Miftakhov