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Knowing Several Stop Loss Strategies Will Make You a Better Trader

When trading the Forex market, how you manage your losses is an integral and critical part of every trade you enter. Your stop-losses will protect you against any unexpected and sudden market moves. In this article, I will discuss 3 of the several options you have when using a stop loss to protect your capital. Among the 3, the third option is specially good since not many traders use it, but all traders should be aware of it.

Fixed

A stop-loss is simply put as the amount of risk you decided to take when you enter a trade. When you place your order, a stop-loss should be included with that order. That will protect you from sudden, unexpected market moves against your position and limit your losses. This is the most commonly used stop-loss and the least profitable of all these strategies.

Trailing

The second most used stop loss is, probably, the best of the 3 if you are a beginner trader. By trailing your potential losses as the currency pair price moves in the direction of your trade you can make nice gains. Although most traders prefer to "set and forget" their trailing losses, I prefer to adjust my potential trailing loss as my trade becomes more profitable. The reason why I do this is that, once I reach my target or goal profit for a trade, if the trend seems strong and there are no indicators showing a slow down of the trend, I want to maximize my profits of said trade. So, I adjust my trailing loss and make it tighter while allowing the price to continue to make gains for me. This works especially well with strong market movements.

Combination with MACD

A lesser known strategy is to set your stop loss and then use your MACD crossover as your secondary stop to get out of a trade. This type of strategy should only be used by more experienced traders as it requires more finesse on your part. On the other hand, by using the MACD crossover as your secondary signal, you would be maximizing your profits as this crossover may indicate a reversal of the trend.

Some of these strategies should not be anything new to traders of all levels of experience. However, once you enter a trade, by adjusting your trailing stop to maximize your profits or using MACD as your stop loss indicator will certainly take your trading to a different level.



Source by Luis Nieves

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