Stop loss (stop loss) installation and parameters.

No aspect of Forex trading generates as much controversy and disagreement as setting a stop-loss order, but almost all traders agree on one thing: it must be set without fail.

Stop-loss is a pending order to automatically close a position once the price reaches the specified trigger parameters. It is designed to limit losses and prevent a complete loss of funds in the trader's account.

Forex trading is quite risky; price movements don't always meet trader expectations, and failing to close a position in time can completely wipe out your deposit. There are many factors that prevent you from manually closing an order, and it's in these situations that a stop loss comes in handy.

Basic principles of setting stop loss.

• Minimum size – in most trading terminals, the minimum size of this stop order is 10-15 points. Therefore, even if you really wanted to, you will not be able to set it closer to the current price. A way out of this situation may be trading on accounts with five-digit quotes, since in this case 15 points will be only 1.5 of the standard value.

• Risk management – ​​risk management in Forex provides for a maximum loss from one transaction of no more than 2-5 percent. That is, if you have only $ 100 in your account, losses when stop loss is triggered should not exceed $ 5. Based on this rule, you will also have to choose the transaction volumes. For example, for the same $ 100, it is not advisable to open positions larger than 0.05 lots.

• Ratio – as a rule, stop loss is set 1.5 times less than take profit .

• When placing a stop loss, it is definitely right away when opening a new order, since an unforeseen situation can occur at any second, from the critical consequences of which only the activation of Stop Loss will save you.

Correct stop loss on Forex.

There are several options for placing this order, and each of the authors believes that their stop loss is the most appropriate. All the recommendations above should be taken into account.

1. Based on price lows and highs – before placing the order, analyze the lows or highs (depending on the trade direction) and set the stop order slightly further in anticipation of a trend reversal. For example, if the market is trending upward, the price has fallen to 1.2545 since the start of the session, and the current currency quote is 1.2575, then set the stop loss at 1.2540.

2. Based on support and resistance lines – the parameter is set below (above) the boundary opposite the trend direction. For example, during an uptrend, below the support line, and during a downtrend, below the resistance line. Before trading, it is necessary to build a price channel.

3. Based on pullbacks – very often, Forex pullbacks against the main trend on the working time frame also serve as the basis for calculations. If the maximum price correction on your timeframe was 20 pips, set the stop loss at 30, using a coefficient of 1.5.

4. Forex volatility - this is also an option where the calculation is based on the volatility of the currency pair. If the volatility averages 100 pips per session, the stop loss should be set based on this indicator and the same price highs and lows.
Decide for yourself which option best suits your strategy, and if you need more information on this topic, you can find it in the article " How to Set a Stop Loss ."