How Stop-Losses Work

I've heard about novice FX traders entering into market and not using stop-losses. Some of these poor folks had their accounts wiped out within hours of opening their accounts. A Forex stop-loss should be an important part of your trading strategy. If not, you're just gambling which will always end up as a losing scenario.

A trailing stop-loss order is used for two reasons. It will allow you to capture as much profit as possible and to protect you fund sudden reversals. The stop loss-will move as price moves position. But, it does not move if price starts to go the opposite direction that your order.

For example, let's say you are long the EUR/USD. You believe it's the beginning a new trend for the day. Once you enter the trade, you place a trailing stop-loss order 25 Pips back from your entry point. As price moves up, so does the order. But, if the EUR/USD moves down, this order to sell doesn't move. If price continues to go down past 25 Pips, your trade is closed.

The beauty of this is you can set it and forget it. Now, in the same example, let's say price when up 100 Pips and never pulled back 25 Pips. You'd be up 100Pips. If price reversed at this point, your order would be triggered 25 Pips down from the current price locking in 75 Pips of profit.

This is a very smart way to trade currency pairs. It works better than with stocks. The reason is currency pair's trend very well and very frequently. If you catch a new trend, a currency pair can go for hundreds of Pips. If you enter a trade with a trailing stop-loss, there's a good chance you can ride the trend all the way to the top.

When selecting a Forex broker, be sure they support this type of order. Some will only have standard stop-loss orders. These do not follow price. They are a fixed point. With these, you need to keep moving them as price trends. This requires you to stay glued to your monitor. Using Forex stop-loss orders must be a part of your trading strategy.

More articles:
How to Calculate Profits. Compare Forex Brokers. Analyzing Time Frames. What is required to trade Forex successfully? Choosing the Right Forex Trading Strategy. The Advantage of Using A Forex Signals. How Stop-Losses Work. Day Trading Strategies For Beginners. Using Forex Trading Signals. Finding a Good Forex Broker. Forex Trading Basics. Using a Managed Forex Account. Forex Market Advantages. Using Forex Charting Software. Using Forex Indicators. Using Forex Trading Alerts. Forex Forecasting Strategies. How to Read Forex Charts. Forex Swing Trading Methods. Learn Forex in Six Steps. Automated Forex Trading.