Cutting losses is considered a basic knowledge that all traders have before making a trade. This is one of the main tools in risk management, so it is important to understand how to set a cut loss as well as when to stop forex trading.
In fact, every trader making a decision to cut losses is very difficult because they do not want to lose, even set a stop loss, but when the price runs close to stop loss further, they hurry to pull the stop loss a little further to hoping for more profits. This sometimes doubled the old paragraph. This is the reason causing irreversible losses. So it can be said that when you practice the bravery of cutting losses, you start the stage of best forex systems.
How to know when to stop in Forex market
More or less stop loss is not necessarily bad or good, it is also related to the trading method. You may place a stop loss order that is shorter or longer than the take profit order. Of course, a trading method with a stop loss order is longer than a take profit order, it will have a higher percentage of winning orders and a higher risk.
But if you lower the risk by cutting more losses, you risk losing capital faster. Therefore, what a successful trader needs to do is know when to cut their losses and to set a reasonable stop loss in order to reduce the amount of stop loss, while reducing the risk for the account.
Setting stop loss
- Firstly, some traders offer a specific level of stop loss, which will be triggered when the price reaches the level where the order was set. For example, when you set a stop loss at 5 pips, it only allows your trade to lose no more than 5 pips.
- Secondly, traders should set up a Stop Loss at an acceptable loss for them in the path of trading. When prices go up the most recent significant swing high, it is highly likely to turn around. When the price goes down to meet the most recent swing low, it is also highly likely to reverse. But once the price has broken through this level, it is highly likely that it will continue to maintain that trend without turning back.
- Thirdly, traders will leave trade at the time they want to. If the trader has a certain profit and they do not want to the price change and stick to their stop loss.
All of the ways I shared above will help you know when to stop forex trading and how to stop loss in the right positions. It is important that you follow their rules. A lot of traders broke the rules, they tried to cut short the stop loss to maximize profits. However, the risk of a stop loss will be hit higher and lead to a loss. Therefore, your task is to locate the stop loss before executing the trade. Also your stop loss must be placed logically. Do not allow greed to affect your stop loss. Next, learn how do forex brokers make money in 2020.