Today’s market hasn’t been as exciting as yesterday’s. There was lots of amazing movement on Monday, but today it seemed that all that movement has retraced. The market can be fickle at times which means that you’ve got to be extra vigilant when it comes to your trades. It probably wouldn’t be the best idea to put on a trade when the market is volatile without entering in a stop-loss.
This brings us to our Term of the Day: Stop-Loss.
A stop-loss order is an order placed that aids in limiting losses on a position. You should never enter a trade without a trading plan and the good thing about stop-losses is that it helps us to stick to that plan. When trading, it is easy to let emotions cloud your judgment and if it gets the best of you, it can lead to rash decision-making. Before entering a position, you should decide how much of a loss you are willing to accept if a trade doesn’t work out. 50 pips? 75? 100? It can be tough to deal with losses when they occur, it happens from time to time though…nothing can be guaranteed in Forex. Stop-losses can be very useful, if used correctly. Exchange prices fluctuate often, most times(if not always) prices do not rise or fall consistently. It is all up to you to set your stop-loss however you deem fit but it isn’t recommended that you put in an order less than 50 pips. You need to give the trade some room to move positively or negatively because like I said before, the price will fluctuate. With too tight of a stop-loss, trades may be exited prematurely, which can result in unnecessary losses.
Please feel free to comment or email me if you have questions about stop-losses. Hopefully, I have explained the topic as clearly as possible. 😀