The management of stop-loss orders is one of the most challenging concepts in foreign exchange (forex) trading, as it involves closing your trades when losses reach predetermined levels. A stop-loss is most effective in protecting capital from being lost due to indecision. Proper use of stop-loss can increase the level of control an individual has over risk management.
Stop-Loss Strategies
There are many ways you can adjust your stop-loss orders to protect yourself in case of unexpected events. Although it can be difficult to admit that you made wrong decisions, swallowing your pride (and placing a stop order) can significantly contribute to stopping losses.
Profit Taking and Multiple Stop-Losses
Some forex traders hold the self-belief that if you place a stop-loss, market makers will manipulate the market to “take” your stop-loss and profit from it. To protect themselves from what they perceive as unnecessary losses, these traders place multiple stop-losses—some closer to the current trading price than others, so that no single currency value will take the full trade from them.
In reality, few traders conduct trades of sufficient size to justify this practice. However, there are other reasons for placing multiple stop-losses. For instance, if a sudden move occurs away from your trading position and takes out the first stop-loss—or even the second—and then the market returns to the original direction, at least a portion of your trade will still be active.
Stop-Loss and Reverse
The stop-loss and reverse strategy involves placing a stop at a certain loss point, while at the same time entering a new position with a stop in the opposite direction. This strategy requires more market experience than most beginner traders possess. Also, not all brokers accept this specific trading structure as a single order. In those cases, once the first stop-loss is executed, you will need to execute a new order that reverses the original order by placing a new stop in that new direction.
Trailing Stop-Loss
You can achieve the old trading saying: “Let your profits run; cut your losses” using a “trailing stop-loss.” As the name suggests, these trades move behind market prices by a fixed amount. If your trades are trending toward profit, the trailing stop-loss moves up as the market price rises. This way, the percentage of loss you are willing to tolerate remains fixed, with market swings in your favor. If the market ultimately moves against you, the trailing stop-loss—after having risen with your profits—protects against the erosion of those last profits.
Source: https://www.thebalancemoney.com/understanding-andy-applying-stop-losses-in-fx-trading-1344899
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