Stop-Loss and Take-Profit in Forex Trading

What is Stop-Loss & Take-Profit?

Professional Forex Market trading requires a thorough understanding of the basic principles and mechanics. Stop-loss and take-profit management (SL / TP) is arguably the most important forex trading concept. Stop-loss is an order you as a trader, send to your forex broker in order to reduce your losses in a specific open position. Take-for-profit works much the same way, allowing you to lock in profit when you reach a certain price level.

When putting stops, we want to put our stop loss on a rational level, that means a level that will tell both of us when our trade signal is no longer true and that makes sense in the context of the market structure around us. Until reward you should always think about risk and you should be at least twice as focused on risk per trade as you’re on the reward. We need to decide our stop loss to decide then the size of our trade position.

Why Use Stop-Loss & Take-Profit?

Forex traders use stop loss and take profit levels to protect them from unneeded financial risk and also to make sure profits are taken for successful trades. Traders adopting a common strategy are likely to appoint their level of stop-loss and take-profit at the same time as entering the forex trade. Both of these forms of orders form part of a risk management plan for traders and ensure a solid management of money in managing overall possible losses and profits for each trade.

Most traders will likely agree with the proposition that the most difficult thing to get right in forex trading is to put stop losses and take profit rates. A lot of Forex trading education and material exchanged with learning traders is based on finding the right positions for joining the trades. Let’s be clear that entry is very important, but it is equally important to have good trade management – that is, to use the right stop losses and take profit levels and change those levels properly as trade progresses. It is possible to consistently be correct about entries and still ultimately lose money.

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