Stop orders are an important part of the trader’s toolbox when it comes to intra-day trading, especially given the volatility over the last 12 months.
Depending on what type of asset you’re trading, a variety of stop instruments are available to suit your risk profile. Standard stop orders help protect investments against adverse market moves. Placing stop orders when you open a position is a necessary discipline of trading and helps avoid excessive losses. It also means you can leave your trading station with peace of mind, knowing that your losses will be limited should the market move against you while you’re away.
The variations on the stop orders are: a Stop if Bid order, which is triggered on the buy price, and a Stop if Offer order, which is triggered on the sell price and can avoid positions being stopped out due to poor liquidity, which can, in turn, cause spreads to widen for short durations.
Stop orders are not only an essential part of risk management they also provide traders with much-needed discipline. By deciding ahead of time that you can afford to lose 10% on a trade, you can place a stop 10% below your open price. You can also keep yourself out of intraday price volatility by buying options – limiting your loss to the premium paid when you opened the position.
A common mistake for many traders is taking profits too early. But by using a stop loss order, you can allow the trade to run without risking your profit. If you make sure your stop loss follows the price upwards, at least some of your profits are protected if the market drops if you raise the stop above the entry price.
In particular, however, stop losses allow for life's eventualities - such as holidays, sickness or family events – without having to watch the markets all day.
Trailing Stops are the lesser known and lesser used option. They allow you to set a stop at a percentage below the market price, so if the current price falls by that amount, your position will automatically be sold. If the current price should rise, however, the percentage is calculated from the new higher value. Trailing stops can prove an excellent way of minimizing loss or locking in profits should the markets move against you.
Two elements need to be taken into consideration - the distance to market, which may be around 20% for example, and the trailing step, which should be kept at a minimum of around 1-2%.
This makes trailing stops a great tool to use in very volatile environments where it might be a disadvantage to have a stop order too close to the entry price because the price fluctuates so widely.
However, trailing stops are still underused, mainly due to lack of knowledge and education, but also lack of discipline. Traders find it easy to say they will only take a 10% profit, but get caught up in the emotion and the excitement of a price rally that is going their way.
A careful trader uses stops in all types of market not just a volatile one. In general, investors using qualified and well thought out stops lose less money than their counterparts and take bigger profits.
Making a daily habit of reading Forex news will help you make not only have a better understanding of the markets but also help you to know where and when to place your stop orders.
Stop orders are therefore an important consideration for traders who are serious about . More at articlesbase.com
Depending on what type of asset you’re trading, a variety of stop instruments are available to suit your risk profile. Standard stop orders help protect investments against adverse market moves. Placing stop orders when you open a position is a necessary discipline of trading and helps avoid excessive losses. It also means you can leave your trading station with peace of mind, knowing that your losses will be limited should the market move against you while you’re away.
The variations on the stop orders are: a Stop if Bid order, which is triggered on the buy price, and a Stop if Offer order, which is triggered on the sell price and can avoid positions being stopped out due to poor liquidity, which can, in turn, cause spreads to widen for short durations.
Stop orders are not only an essential part of risk management they also provide traders with much-needed discipline. By deciding ahead of time that you can afford to lose 10% on a trade, you can place a stop 10% below your open price. You can also keep yourself out of intraday price volatility by buying options – limiting your loss to the premium paid when you opened the position.
A common mistake for many traders is taking profits too early. But by using a stop loss order, you can allow the trade to run without risking your profit. If you make sure your stop loss follows the price upwards, at least some of your profits are protected if the market drops if you raise the stop above the entry price.
In particular, however, stop losses allow for life's eventualities - such as holidays, sickness or family events – without having to watch the markets all day.
Trailing Stops are the lesser known and lesser used option. They allow you to set a stop at a percentage below the market price, so if the current price falls by that amount, your position will automatically be sold. If the current price should rise, however, the percentage is calculated from the new higher value. Trailing stops can prove an excellent way of minimizing loss or locking in profits should the markets move against you.
Two elements need to be taken into consideration - the distance to market, which may be around 20% for example, and the trailing step, which should be kept at a minimum of around 1-2%.
This makes trailing stops a great tool to use in very volatile environments where it might be a disadvantage to have a stop order too close to the entry price because the price fluctuates so widely.
However, trailing stops are still underused, mainly due to lack of knowledge and education, but also lack of discipline. Traders find it easy to say they will only take a 10% profit, but get caught up in the emotion and the excitement of a price rally that is going their way.
A careful trader uses stops in all types of market not just a volatile one. In general, investors using qualified and well thought out stops lose less money than their counterparts and take bigger profits.
Making a daily habit of reading Forex news will help you make not only have a better understanding of the markets but also help you to know where and when to place your stop orders.
Stop orders are therefore an important consideration for traders who are serious about . More at articlesbase.com
