Currency Market

Stop Loss and Take Profit in the Forex market

Stop Loss and Take Profit in the Forex market


In this section, we will explain in detail what the stop loss and take profits. If you've read this far, it will be realized that a lot of times we mention the importance of these two concepts. And with good reason. 

Stop Loss (abbreviated SL) and Take Profit (abbreviated as TP), two price levels can be set for any operation is (long or short) in the currency market. Both stop loss takes profit, are very useful tools for the purpose of not having any kind of risk in foreign exchange transactions and have the ability to hedge losses.


Stop Loss and Take Profit in the Forex market, Forex Market, Forex, Currency Market,


We begin by explaining exactly what the stop loss. Who knows a little English probably already guessed what it is: the loss of cells is used by traders to hedge their location automatically if you are already losing large or small. The trader is free to choose the price you should do: if this level is reached during the various movements of the price of a currency pair you bought (or sold), right away, your position will be closed automatically by Broker.

This means that there would have to manually complete the transaction: when it reaches that level, we believe the same broker to do it for you. Cell loss is in the opposite direction to that in which to invest:

If you open a (position bull) long and stop loss will below the current value of the currency pair.

If I open a short position (bass), and stop loss will above the current value of the currency pair.

Moreover, I have explained everything with a trivial example. If EUR / USD was trading at 1.1167 values, and open a bull position, our stop loss can (for example) the position value of 1.1127. Therefore, if all goes as expected, the price will never touch the stop loss, if not increase.

If our prediction was wrong, and the price began to fall as soon as you arrive at 1.1127, our position will be closed. Of course, the loss hurt us, but check and limit the loss. We did not have a stop loss, our position will remain open, which means that if the price keeps falling, losses are are becoming larger and larger.

Stop Loss and Take Profit in the Forex market, Forex Market, Forex, Currency Market,

This explains the importance of Stop Loss: lets us know in advance how much we lose (most) of our work. Obviously, no one forbids you to close your position before it touches the stop loss: If you see that with the loss, then your prediction is wrong, you can safely close early and suffer an even smaller loss that can get in the stop -loss.

If you stop the loss of protection against loss, take profits instead ensures profits. The level of these benefits is always set by the merchant, which, if achieved, is to close the position (this time in again) automatically. In fact, take a profit is equal to earnings potential you want from your work.

fixed take profit, if reached, we think it's broker to close their shops to get. Someone might say here, but because I have to limit their profits? We respond with an example.

We still have the EUR / USD usual in the current value is equal to 1.1167. As before, we can open a long position, as we believe it will be a place in the day. We decided to put a stop loss but have no benefits. Everything is going as planned: be a few hours, and EUR / USD reaches 1.1215 actions. If you close the operation now, let's take profits home (if we invest € 100 leverage 1: 100, we are talking about € 148). But we have decided not to close because we want to point out to earn even more.

Price continues to grow, even if it is difficult to reach 1.1232 were the closed fee if I would have had a profit of € 165. But why stop now? We leave an open position, and things start to get against us: the price starts to go down and touch 1.1203 shares; if we close now to a profit of € 136. What to do? Stop or wait to go back at least fifty euro gain was initially rejected?

Doubts. Questions. As you can see, the failure to establish the level of Taking Profit is our confused ideas. Everything that came into play on our emotions, like greed. The initial + € 48 euros profit is not bad either. Not to mention the next, even better. But now we still only get 36 € + Frequently, the situation becomes more drastic, and some traders will get from having to suffer the loss.

This is not only important to determine the level of stop-loss: you have to think about the level of such benefits. In addition, both levels are very useful if you can not spend as much time in front of the table: if this level is established, we believe the agent to close your position, avoiding that will help you discover some unpleasant surprises when you come home and perhaps you return to your trading account.

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