How To Manage Risk in Forex Trading With Stop Loss
Regardless of how knowledgeable and intelligent a trader maybe about the markets, their own psychology and emotions will cause them to lose money. What can be the cause? Are the markets so enigmatic that only a few succeed in making profit?
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The most likely main cause is that many currency traders commit the same common mistakes. However, the good news is that these mistakes while they can be emotionally and psychologically challenging, can be solved.
Without a sense of risk management, many traders hold onto a losing position for an extremely long amount of time and take profit on a winning position far too prematurely. The net result is that traders end up with more winning positions than losing ones but their account Profit/Loss (P/L) is negative. Keep these simple risk management rules in mind while trading.
Use stop loss orders to specify the maximum loss that you are willing to accept. Using stop loss helps you avoid the scenario where you have many winning trades but a single loss large enough to wipe out all your profits. Using trailing stops can be good.
There are two recommended ways of placing the stop loss order. One involves placing the stop loss order 10 pips below the two days low of the currency pair. For example, if the EUR/USD recent low was 1.1300 and the previous day low was 1.1200, then place the stop loss at 1.1190, 10 pips below the two day low if you want to go long.
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