Seven Common Stop Loss Exits...

Stop Loss EA

A stop loss order will automatically close a trade at a set level in order to prevent further losses. If a buy order has been placed, then the stop level is set at a price that is lower than the buying price. On the other hand, if a sell order was triggered, then the stop will be placed above the selling price.

A general rule is that the exit strategy must coordinate with a trader's entries and his overall trading system. For trending system, it is required that the trader set a bigger stop loss level which allows more room for the trade to breathe. If it is a contrarian system or breakout system, a small stop loss should be set so that trade will exit immediately if it is a bad trade. Thereby, traders' loss will be limited in such forex trading system.

A stop loss placed to trail with market price is a trailing stop loss. This trailing or shifting of trailing stop must be carried out after every closed of each bar and for subsequent bar until trade position is exited. The automation of this trailing stop loss can be done by a Stop Loss EA.

There are a variety of stops that one can incorporate into a system.

1. Initial Stop

This is the first stop set at the beginning of the trade. This stop is identified prior to entering the market. It is used to calculate the position size of the position at which to trade and this is also the largest loss a trader will take in the current trade.

2. Trailing Stop

Develops as the market moves. This stop enables the trader to lock in profit as the market moves in the favor. Trailing stop ensures that the stop loss follows the price movements closely as the trend develops. This is to prevent any sudden market movements from taking out profits should the trend starts to reverse.

3. Two Bar Trailing Stop

This is used in a trend if the market seems to be losing momentum and a reversal is anticipated.

 4. Moving Average Trailing Stop

Moving average indicator is most common used for trailing stop loss.

5. Average True Range Trailing Stop

Also called ATR indicator. This indicator is mostly used by turtle traders or trend following traders to determine market volatility and place their stop loss away from volatility and protecting their profits at the same time.

6. Parabolic SAR Trailing Stop

Another indicator widely used for placing your stop loss.

7. Channel Trailing Stop

Also a commonly used trailing stop technique for turtle traders or trend following traders.

Is Your Stop-Loss Selection Based on Market Dynamics?

It means that have you taken in to account market conditions that will tell you how much room you need to give the trade to breathe so that your trade will not be exited due to market noises and repeatedly stop out? There is no perfect stop-loss strategy but the most ideal stop loss strategy has to be discovered and worked out by the trader via back testing and forward testing.

Best Regards,

Warren Seah And Forex Trailer Team