Setting up the perfect stop loss and take profit in Forex

Adam Smith

Dec 14, 2015
Stop loss and take profit are the two most important terms in the Forex market. Without having a clear concept of these two factors, you are not going to survive. Those who live in Singapore and trying to develop themselves as a professional trader should read this article thoroughly. We are going to discuss some of the amazing ways by which you can set the perfect stop loss and take profit for any trade.

Stop loss and take profit
Stop loss is the defined price by the traders when the trade closes automatically. It is used to limit the loss. Let’s say, you have opened long orders in the GBPJPY pair. After one hour, the price dropped 200 pips. But if you set the stop loss for 50 pips, the trade will automatically close once the market drops 50 pips. Just like this, take profit orders are used to close a profitable trade automatically. For instance, you can set 200 pips to take profit for the GBPJPY long trade. If the price goes up 200 pips, the trades will be automatically closed with profit.

Support and resistance
To determine the perfect stops and take profit for the trade, you need to learn about the support and resistance level. The naïve traders are trying to make a profit by using minor support and resistance. But if you stick to the minor support and resistance, you are not going to secure any profit. You must focus on the long term goals and trade the major support and resistance. If you execute short order at the critical resistance, you need to set the stop loss just above the resistance level. On the contrary, if you execute long orders at the critical support, set the stops just below the support zone.

High time frame
By now you know the fundamentals of using the stops. But make sure you use the best Forex trading account to secure a professional trading environment. Instead of trading the market in the lower period, focus on the higher time frame. If you trade the 30 minutes or below time frame, you are going to trade the minor levels. Trading minor levels increase the chances of losing trades. You will not be able to use the perfect stop loss and take profit level. So, try to trade the higher time frame as it will improve your accuracy while placing the stops and take profit.

Use the price action signals
You need to learn the use of price action signals since it is one of the most efficient ways to set the stop loss. Though you can set the stop loss by using the knowledge of support and resistance, it increases the risk to a certain extent since you have to rely on wide stops. So, if you learn to use a candlestick pattern, you can use the wick of the candlesticks to set the stops in each trade. Though it’s a very complicated process if you rely on long term goals, it should not take much time to learn price action trading. The price action trading system is mostly used by advanced traders. And if you can rely on the price action signals, you can expect to make a decent profit without taking too much stress.

Risk factors
Another key issue in the trading business is the risk factors. Never open a trade with big volume so that the overall risk exposure exceeds 2%. You should think about the long term goals and trade this market with discipline. Try to reduce the risk exposure by following the strict money management policy. No matter where you place the stops, you should not take more than 4% risk in any trade. And the take profit should be set in such a way so that the winners are at least two times bigger than the losers. Follow this simple technique and you won’t struggle at trading.