This article looks at the stop loss order placement on the foreign exchange Melbourne.
When you trade on the foreign exchange Melbourne you need to know about where to place your stop loss orders. Before you can look at placement of these orders you will need to consider the reasons why you need to have these orders. Once you understand the importance of the stop loss order you will have to look at the three ways that you can determine the placement. These three ways are through a set pip amount, through risk levels and through strategy guidelines.
The Importance of Stop Loss Orders on the Foreign Exchange Melbourne
Before you can look at how you should be placing your orders you have to understand their importance. The stop loss order is important when you trade because it will limit the losses that you face on the market. You have to limit the losses you face on the market otherwise you will lose everything on the market. The best way to succeed on the market is to protect your trading account balance and this can be done with the use of stop loss orders.
Set Pip Placement
The first way that you can consider setting your stop loss orders is through a set pip value. When you use this method you will determine on a number of pips from your entry point. This amount will generally be determined when you are setting up the trading plans that you will have. There are a number of benefits and drawbacks that you will find with the use of this method.
The primary benefit is that you will know exactly where to place your stop loss order with every trade that you open. The primary drawback is that the amount you set could risk a large portion of your trading account. This means that you could be undermining the purpose of the stop loss order.
The Risk Level Placement
When you create your risk management plan you will determine the risk you are willing to have per trade. This amount is the amount that you are willing to lose on a single trade. The most common risk level will be 2% of your trading account, but you can set this higher or lower if you want to. When you use this level to set your stop loss order the order will be placed at the price where you will lose the 2% of your trading account.
The benefit for this placement is that you will never risk more than you are comfortable with on a single trade. The drawback is that you could be setting the stop loss order too tight.
The Strategy Stop Loss Order
When you look at the strategies that you can trade with you will notice that some of them will tell you about where you should be placing your stop loss order. These strategies will have a plan for your stop loss order and diverting from this could cause problems with the profitability of the strategy. If you have a strategy that tells you where to place the stop loss order you should consider using this placement and not one of the other methods.