One of the most important and core concepts of Forex is Stop Loss (SL) & Take Profit (TP). Every beginner Forex trader needs to learn what is SL and TP in Forex, and how to use them to secure maximum profit from forex.
Every trader should use sl & tp to manage their positions and create a profitable trading strategy. It is one of the crucial strategies for traders. In this article, today we’ll be discussing what is sl and tp in forex, what are the benefits of using them and how to use them.
What is SL in Forex?
A stop loss is an order that closes your open position automatically when the price reaches a certain position. It indicates how much risk you’re willing to take per trade. It is a market order.
Advantages of SL in Forex
- Stop loss allows you to minimize your losses
- It helps you to eliminate the stress of looking at charts all the time to close the order.
How to Use SL in Forex?
Successful professional traders believe that if you want to be successful and consistent in Forex trading, you must first learn how to minimize your losses. Stop loss is a major weapon for traders to cut their losses in the long run. As a trader, it is very important to know when to exit before entering the market.
Stop loss helps you to cut losses and protects your account from more losses. There are 3 types of Stop Loss order types:
1. Percentage Stop:
Percentage stop loss is the percentage of your trading balance you’re willing to risk per trade. Let’s say you’ve a trading balance of $5000. You’re ready to risk 2%. Your broker will understand and set your stop accordingly.
2. Chart Stop:
Chart stop is one of the most popular stop loss orders. You would need technical knowledge to do analysis. You can also use support and resistance level to determine stop loss and take profit level.
3. Volatility Stop:
Volatility measures how the price of a currency changes. As a trader, everyone wants to take advantage of the market volatility. Now you can decide how you would like to leverage this.
What is TP in Forex?
A trade profit is an order when you want to close your order in profit. It indicates that you’ve achieved your profit target and want to exit the market. It is an exit order.
Advantages of TP in Forex
- It allows you to secure your profits.
How to Use TP in Forex?
Forex market is very unpredictable and it always fluctuates. You need to take profit at the right time before your trade goes against your prediction. You can use different technical analysis tools to determine Take Profit. Bollinger Bands, Relative Strength Index or Average Directional Index works best for SL and TP.
As a trader, the most important task is to secure your capital and minimize losses. And using SL & TP can help you achieving your trading goals. Start practicing and try to use SL/TP when you trade. Also, don’t forget to control emotions while trading.