Different Types of Market Orders (Part II)
Stop Loss Orders: Stop loss orders are critical to your trading survival. The traditional stop loss order does just that. It stops losses by closing out an open position that is losing money. Stop loss orders are used to limit losses if the market moves against your position. If you dont use stop loss orders, you are leaving yourself at the mercy of the markets. A dangerous proposition!
Your stop loss order would be to buy but at a higher price than the current market price if you are short. Your stop loss order would be to sell but at a lower price than the current market price if you are long. Stop loss orders are on the other side of the take profit orders but in the same direction.
Trailing Stop Loss Orders: A trailing stop loss order is a stop loss order that you set at a fixed number of pips from your entry rate. The trailing stop order adjusts the order rate as the market price moves but only in the direction of your trade.
Suppose you are long on EUR/USD at 1.2654. You set the trailing stop loss order at 30 pips. The stop will initially become active at 1.2654-30=1.2624. If the EUR/USD rate goes up to 1.2674, the stop adjusts itself and will become active at 1.244. The trailing stop loss order continues to adjust itself higher as the market moves higher.
When the market puts in the top, your trailing stop will be 30 pips below the top. If the market ever goes down by 30 pips, the trailing stop loss order will be triggered and your open position closed. So in our example, you are long at 1.2654. You set the trailing stop loss at 30 pips and it became active at 1.2624.
Suppose the market never ticks up and instead the market goes straight down. You will be stopped out at 1.2624. Instead suppose the market first rises to 1.2664. Then the market declines 40 pips. Your trailing stop loss order will first rise to (1.2664-30=) 1.2634. It is at 1.2634 that you would be stopped out now.
Did you hear the saying while trading: Cut your losses and let your winners run? A trailing stop loss order allows you to do exactly that. You wait for the market to stage for a reversal in case of a possible winning trade. Instead of you picking the right level to exit on your own, the trailing stop loss order takes you out of your trade.
Use of stop loss orders is critical in money and risk management. Never ever, trade without the stop loss orders! So the key to successful trading is to cut losing positions quickly and let winning positions run. This function is nicely performed by the trailing stop loss order. - 23208
Your stop loss order would be to buy but at a higher price than the current market price if you are short. Your stop loss order would be to sell but at a lower price than the current market price if you are long. Stop loss orders are on the other side of the take profit orders but in the same direction.
Trailing Stop Loss Orders: A trailing stop loss order is a stop loss order that you set at a fixed number of pips from your entry rate. The trailing stop order adjusts the order rate as the market price moves but only in the direction of your trade.
Suppose you are long on EUR/USD at 1.2654. You set the trailing stop loss order at 30 pips. The stop will initially become active at 1.2654-30=1.2624. If the EUR/USD rate goes up to 1.2674, the stop adjusts itself and will become active at 1.244. The trailing stop loss order continues to adjust itself higher as the market moves higher.
When the market puts in the top, your trailing stop will be 30 pips below the top. If the market ever goes down by 30 pips, the trailing stop loss order will be triggered and your open position closed. So in our example, you are long at 1.2654. You set the trailing stop loss at 30 pips and it became active at 1.2624.
Suppose the market never ticks up and instead the market goes straight down. You will be stopped out at 1.2624. Instead suppose the market first rises to 1.2664. Then the market declines 40 pips. Your trailing stop loss order will first rise to (1.2664-30=) 1.2634. It is at 1.2634 that you would be stopped out now.
Did you hear the saying while trading: Cut your losses and let your winners run? A trailing stop loss order allows you to do exactly that. You wait for the market to stage for a reversal in case of a possible winning trade. Instead of you picking the right level to exit on your own, the trailing stop loss order takes you out of your trade.
Use of stop loss orders is critical in money and risk management. Never ever, trade without the stop loss orders! So the key to successful trading is to cut losing positions quickly and let winning positions run. This function is nicely performed by the trailing stop loss order. - 23208
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading and currencies. Discover a revolutionary new Forex Robot. Learn Forex Trading!
posted by X - Men @ 6:41 AM
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