Losses are inevitable in Forex trading. But there’s no need to worry. You can still avoid incurring lots of losses. A stop-loss order can come in handy. Just like how its name suggests, it limits the losses in open positions. If you are engaging for long positions, you can utilize a stop loss just below your recent low. For those short positions, you can place it in the recent high. The placement of stop-loss can also be based on volatility.
For instance, the stock price moves $0.05 per minute. You can place a stop loss at $0.15 away from your entry point. As much as possible, you must define how you should control the risks involved in your trades. If you are using a triangle pattern, you can place your stop loss at $0.02 just below a recent swing or $0.02 below your pattern.
Another strategy when using stop loss is by using two of them:
A stop-loss can be placed at a level that best suits your risk tolerance. At this point, this is where the money you can afford to lose is placed.
A mental stop loss can be placed when the entry criteria get violated. By this, when your trade turns sour, you can just immediately close it.
No matter where you want to exit your trades, you must make sure that the exit criteria is well specified and must be repeatable and testable as well. Setting a maximum loss every day is also very important because it allows you to view what you can withstand. By the time you hit this point, do not hesitate to take the rest of the day away from the Forex market. You must never forget about your plan and your set perimeters. There’s nothing to worry about, tomorrow is another day to trade.
After defining the entry points and the right place for the stop loss, you can now have the perfect strategy that fits perfectly for your risk limit. If you think that your strategy gets you exposed to a lot of risks, you have to alter it so as to reduce the possible risk per trade.
But if the strategy goes right with the limit you’ve set, then you can start testing it. You can go into your historical charts when finding these entries making sure that the target or the stop loss will be hit.
Day Trading Strategies
Mastering the things mentioned above, you can now start using different trading strategies that will maximize your profits. Here are popular techniques that you can use.
Follow the trend – traders following the trend will purchase whenever the prices rise or you can short sell it when the price drops.
Contrarian Investing – this strategy buys during the rise in prices.
Scalping – this strategy uses small price gaps and usually involves entering and exiting positions.
Trading the news – traders who utilize this strategy buys whenever good news is announced. You can also short sell it when bad news happens. This Forex trading strategy leads to more volatility, leading to higher losses or profits.