Most of the investors in Forex trading become so busy deciding the entry and the exit price of a financial instrument that they overlook setting up a stop-loss order point. This point can help traders to save their trading from his loss, but because of laziness, most of them do not care about the settlement of this.
Stop-loss order point might seem a little bit complicated for beginners, but with continuous study, they can solve this problem. Today, here, we are going to discuss the aspects of a stop loss so that you can find the benefits of setting an order to minimize the loss in the bearish market.
This is considered a very powerful tool that is available for the investors so that they can limit their losses, and it is also regarded as an advanced way to sell financial instruments based on the pricing point. Based on different market scenarios, it helps to automate the process of selling. For instance, if you want to buy a currency pairs at $800, then we will not lose more than 5% of the investment. When the trade setups does not work as your expectation, accept the fact. Set a stop-loss order in the beginning as it will automatically close a trade when the price comes to $40. In this way, by putting a point at 5%, we can limit our losses, which could totally take out our investment and reduce our account zero.
This point can be set for both long-term and short term, but it is most effective for the day traders. Most of the brokers do not take so much charge if a trader uses this type of order in the beginning because this makes the trading more effective. Try trading with Saxo Bank as they offer optimized trading conditions to retail traders. You can easily cut down your trading costs and make your trading profession easier by using a fine tuned trading environment.
Advantages of using stop loss:
Here we will discuss a few benefits of using this order point.
1. Cutting down the losses
It helps us to cut down our losses and the risk in trading even against a big downtrend. Price may fall steeply, and our trading business may turn out quite ugly if we do not place a stop-loss order after buying the financial instruments.
A good benefit of this is the automation of the system as it can trigger the closing of the trade when the pricing point reaches the previously set point. This especially helps an investor not to be present in the market all the time and take an automatic decision, which helps him to increase his productivity.
3. Maintaining risk to reward
Maintaining a risk to reward ratio is very important, and if we are stubborn to take only a certain amount of risk without any measurement, then we will not get our success. Stop-loss order point helps us to maintain a perfect risk to reward ratio, which can be 2%, 5%, or 8% based on our investment.
This system helps us to execute trades in a disciplined manner without running after the trades without any proper research. Detaching ourselves from our emotions is really important if we do not want to get biased because of human emotion.
To conclude, we may say that caution should be maintained even after setting up a stop loss point because damage can compel us to erode our trading goal and raise the risk in our startup to a great extent. Sometimes, rookies change their point repeatedly, which may bring huge loss later because hoping for the uptrend of the market and changing the order may prove foolish as the market does not take the uptrend soon in some cases.