Sell stop.
When trading on the Forex currency market, both instant and pending orders are used, and the latter have several variants, one of which is the sell-stop order.
A sell stop is a pending order to sell the base currency . It involves opening a position if the price falls below a specified level. It is typically placed during a downtrend, but other placement options are also available.
The assumption is that after the sell stop is triggered, the price will continue to move downward, thereby generating profit for the trader. This is essentially a classic sell order, but it doesn't trigger immediately, but only after the price reaches the level specified by the trader.
Placing a sell stop order.
To place this order, simply select Pending Orders in the new order placement window next to the "Type" tab, then select Sell Stop and execution parameters in the menu that appears.
You can also limit the order's validity period, for example, to one day. This feature is quite important and shouldn't be ignored. The idea is that if your order is triggered by a sharp price drop, there's a high probability the position will close profitably. However, if the trend gradually reaches its trigger point, there's a high probability of a reversal.
When placing pending orders, don't ignore stop order parameters, especially stop losses. Beginner traders often forget about stop losses when placing a new order, only to find their deposits wiped out. Risk insurance is essential in any case; it's the only way to protect your deposit, especially since traders almost never monitor their own pending orders.
A sell stop assumes that the take profit will be lower than the strike price, so that it is triggered as soon as the short position reaches a certain profit level. Conversely, a stop loss should be higher than the strike price. This way, if the trend reverses after the position is opened, the stop loss will prevent your deposit from being completely wiped out.
Many traders forget about stops when placing pending orders. This forgetfulness is usually punished by the loss of the deposit or significant losses.
Trading strategy.
There are several options for setting a sell stop:
1. A price channel breakout: first, plot support and resistance lines, then place an order at a certain distance from the support line, usually 15-20 pips.
2. Forex news trading : before an important news release, place an order 10-15 pips below the current price. It will be triggered if the expected event has a negative impact on the base currency.
3. Significant levels: these can be lower price levels. For example, the price of the EUR/USD currency pair fluctuates between 1.3010 and 1.3060 during the week. In this case, we place a sell stop order at 1.2985.
You can also find other options for using sell stops in Forex trading. Another option for pending orders for opening short trades is a sell limit .
