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There are pros and cons of stop-loss forex trading strategy. In this article I want to summarize the most important points of this topic and help you to understand if you need to use this trading instrument or not.
Pros:
1.You cut down your losses, so no matter what happens and no matter how the market moves, you won't lose more money than you set. This is also the main purpose for using this order.
2.You protect your deposit from the sudden big market movements against you. Remember - they can always happen, and this doesn't depend on your trading system. But you can protect your money from this dangerous trends by using stop-loss forex trading strategy and setting it properly according to your trading rules.
3.You can calculate your maximum total loss for your trading system. It usually happens on the "bad" market for your system and is a result of series of losses that come in a row. This will help you manage your risks better. Knowing the weak points of your system, you can always set your trading lots so you don't lose too much money even if things go the worst way.
Cons:
1.If your stop loss order was executed and than market movement changes, you can't profit from it because your deal is already closed. So you can't recoup your losses if your forex trading strategy doesn't imply opening additional deals to cover the losses.
2.Sometimes market is "stormy" - volatility increased, no particular trend. This usually happens when some important news comes out. On this market trader usually opens a lot of positions, and a lot of stop-loss orders execute again and again. This can summarize into one big loss.
3.You need to consider certain currency pair's volatility - and then set your stop losses according to it. If your SL (stop-losses) are too small it will cause a lot of series of small losses that can result into a big one. If your SL are too large, one loss can drain all your profits, so your bottom line will be near to zero. So you need to take into consideration the volatility of the currency pairs you're working with.
Let's summarize. There are pros and cons of using stop-loss orders. You need to make your own decision about whether to utilize it or not. My opinion is - use it anyway. Stop-loss forex trading strategy needs some proper management, but it can drastically help you to control your risks.
About the author:
I am a freelance writer and write in many areas including finance, advertising, investments and trading.I recommend you to try out this Forex Trading Platform. No Download. Open Account in 5 Minutes. Trade USD vs. All Major Currencies. Start for As Little As $100. Leverage Up to 200:1. Use Your Credit Card to deposit funds.See you later! |
