What are Forex Stop Orders and Limit Orders?
By: Adrian Friggieri
During our learning curve in forex trading we are told in a large number of occasions that any trade we open we must include a stop order strategy and also possibly a limit order strategy to our trades. This helps us become disciplined traders and would help us make the very best out of our trading efforts.
Forex Stop orders and limit orders help the disciplined trader to keep consistent profits and to keep a consistent flow in the game of trading. Do not forget that we are going to have a number of loosing traders apart from our winning ones.
How to use Forex Stop Orders in your trading
What is Forex stop orders? This refers to a stop loss, but it is the proper jargon used on the trading floor. Forex stop orders is when you are telling your trading platform the limit you want a trade to move against you. The threshold of pain we can call it or the exit strategy that you adopt in your trading. Remember that in order for you to keep your trading account healthy you should not over trade and allow a large amount of your trading account to be used on a single trade.
Usually some traders would say never exceed 5% of your trading account on any one single trade. However your stop order should not be too close to your entry because the markets have a considerable amount of trading noise which will make the prices oscillate sometimes a lot and possibly could close your trade before if turns back to becoming profitable.
Learn well the pair you are trading in order to understand the amount of pips you should use for the stop. Also by reading well the charts you should be able to spot clearly turning points, or better, the point were you should exit that trade because it will move against you. Possibly even you close the trade yourself before the stop order is reached. Yes you can accept a loss.
How Limit Orders will help your profits
limit orders helps you not get greedy and loose all the profits on your trades. Newbies especially but sometimes also experienced traders would simply leave a trade go and go in the hope it goes higher.
Yes, sometimes it will go higher and higher but sometimes it will also reverse back and possibly hit your stop orders instead of your profit limit orders. This will ensure that you have an exit strategy even for your profits and you are actually calculating an amount of pips of profit per trade.
It is important that there is a balance between the pips gained and the pips lost as you will certainly have losing trades its very normal. You should adopt an exit strategy to collect pips and be happy with the amount of pips collected in order to ensure your long term survival.