Stop Loss, Take Profit, and Trailing Stop are all terms used in forex


Stop Loss, Take Profit, and Trailing Stop are all terms used in forex

Forex Definitions: Stop Loss, Take Profit, and Trailing Stop

Some initial assumptions

To illustrate For illustration, let's suppose these:

We took on an extended position with a typical amount of 100,000 EUR/USD within a USD-based account, which implies that we've bought 100,000 EUR. The currently quoted price for EUR/USD is 1.5000. This means we paid $150,000 for the trade.

Pip refers to the possible minor change in the transaction price, which will be 0.0001 for EUR/USD. This is generally the case for all other pairs. 

We can determine the pip value for any trading using the formula of multiplying 0.0001 by $100,000 and then figure for the tiniest change in the trade value that can result in an income or loss of around $10.

It is true that the Forex market is volatile and requires instruments to protect our trading. Trading platforms offer this protection by utilizing limit, stop, and trailing.

Stop Loss Order

Stop loss orders can be a way of protecting our assets in the event of a catastrophic scenario. This method involves the use of a stop-loss pending order. 

For instance, for a stop-loss order, if we make an order at -20 pip (according to the rules that we have mentioned earlier) for this type of trade, it is a sign that we will lose just $100 per 20 pips = $200. 

You may discover that these trades are extremely useful in keeping track of the risk of loss for all your open positions with the highest precision.

Take Profit Order

Contrary to a stop loss, a Take Profit order (which relies on a pending limit order) can be considered the best way to secure our earnings since the trade is shut down once the damage is at the required level. 

For instance, if you make an order for a Take Profit order with a spread of +40 pips, the highest gain we'll earn from this trade is $10 $40 x 40 = $400.

The decision to place the Take Profit order for the trade is the best option as it allows us to keep the purpose of the trade evident throughout its existence as well as avoid the significant possibility that we're susceptible to the lure of greed that could ultimately cause the trading strategy to be destroyed—setting a clear goal for the trade when it was opened means that we cannot close it due to our desire for greater profits. 

It is often the case that it winds ignoring the closing|in the middle|at the top, ignoring the closing} of the winning trade when it has already reached the highest possible levels, and the price is beginning to decline and then closing it with the loss.

Trailing Stop in Forex

The trailing order is among the most essential and practical tools, especially in moments of market volatility. If we consider that you have just initiated a trailing stop-loss trade to move the limit of the TP by 50 pips, the pair in the previous example showed an increase between 1.5000 to 1.5150. 

They then rebounded to 1.4800, assuming that you set the stop loss and profits orders at 1.4900 and 1.5200. What will happen in this situation?

The absence of a trailing stop means that we're going to close this trade at the stop-loss level of 1.4900 or lose $1,000. If a trailing stop loss order is made in the course of trading, it will close with a profit of $1000 since the platform in the case has changed the stop loss level to the level of 1.5100 when the value exceeds 1.5150. 

The purchase order for trailing continuously alters the location of the stop loss level in line with the value shift in your trade, but it will lock the stop level if the value begins to rise in the opposite direction.

According to this explanation, The new stop-loss levels will be activated when the value is at 1.5100, which implies that it will "protect" a large amount of the earnings generated.

I'm sure you're aware of the significance of using Stop Loss or Take Profit as well as Trailing Stop orders since they can distinguish between successful and unsuccessful trades. This is why the right way to utilize them can be an essential aspect of the knowledge that anyone who trades forex should be able to learn to master.

Previous Post Next Post

نموذج الاتصال