Let’s start with a simple assertion; when trading any currency there is always a high level of risk involved. This is particularly true in the current climate, however, with Britain debating whether or not to withdraw from the EU and talk of a global recession dominating economic circles.
Given this and the fact that not all traders are willing to take big risks, the forex weekly analysis market may well be avoided by those without the appetite for a challenge. After all, while there are opportunities to make huge profits in the foreign exchange these can often be counterbalanced by the chance of making a large loss.
The Importance of Stop Loss and take Profit levels
For this reason, many traders choose to set stop loss and take profit levels. A take profit order is where traders state an exact rate or number of pips from a currency’s current price where they want to close out the position for a profit. Stop loss is the exact opposite, where a specific rate is decided to stop trading to minimise losses. There are various ways to use this effectively when trading.
These measures can help you to automate and carefully manage your portfolio, minimising risk and potentially optimising gains over a sustained period of time. So long as you approach this from a position of knowledge and ensure that you use these features wisely, you can profit in a constantly changing, global marketplace. For example: –
Including stop loss and take Profit levels as part of your Trading Strategy
During the preparation for any trade, the stop losses and take profits should be incorporated into the trading strategy. When you go into real time trading it can be too easy to get carried away and hold out for either making a higher profit or coming back from a loss.
By setting these out beforehand it will ensure it is controlled, so that successful trades do not turn into losses or unsuccessful ones turn into highly damaging ones. It will also help you budget on how much to invest in your chosen currencies.
Use Appropriate Stop Losses
There are various methods for setting stop losses. The percentage based one is most common, which involves using a predetermined portion of a trader’s account for setting the stop loss or take profit. Ideally this should be limited to around 2%, though will depend on your finances and trading methods.
Support and resistance is another way that bases the levels on current market trends so you can risk more at profitable times. Time limit stop losses are set within a certain period so you cannot lose too much in one go, the trades stopping after a decided amount of time.
Make the Most of Calculators
The easiest way to work out what your stop loss and take profit margins should be is to use the FxPro calculator. This is a much quicker way to work out important trading calculations by inputting all the vital information such as the currency pair, leverage, position size and more. Whatever method of setting stop losses you decide to use this is an extremely helpful tool. If you’re hoping to make a success of forex trading and edge on the side of caution then setting stop loss and take profit levels is essential.
These steps enable you to understand the purpose of stop loss and take profit levels, while hopefully ensuring that you are able to utilise these to benefit your trading strategy. This is important in the current economic climate, and it may become even more so in the event of a global recession.
