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In alternative investments to stocks and bonds trading, many different types of concepts are used for entry and exit.
Traders may use stop loss to protect every trade executed in the market.
The stop loss indicates the order where one adds the trading position during and after a certain time of starting the trade.
The traders use the technique to request automatic exit in the conditions where the price reaches a certain level.
In such cases, if the price action moves against the trade, the position is closed automatically.
The stop-loss orders can be of different types – the hard stop loss and the trailing stop loss.
Hard stop loss is the simplest one where the investors place the order at a specific level and the trade gets automatically closed at the market price at the time when the level is reached by the price action.
Such restriction is introduced to contain the financial risk of losing trade.
The trailing option for some financial structured products is different in case the price moves against your expectations.
However, if the prices are moving in your favor, the Stop Loss moves incrementally in the same direction.
The trailing stop trails the price action as the prices move in the expected direction.
So, if you choose the stop to trail 30 pips, it will follow the price action confirming to the distance when the Forex pair moves as expected.
But if the prices move in the opposite direction, the stop remains still.
One should always trade with it, to get protection from losses where you define the stop at the time you enter the trade.
Never move the limit unless it is necessary.
One should stick to one percent of the account risk. For example- If you invest $10000, 1 percent of the total capital is $100. So this is the total risk on the specific trade.
The risked percent multiplied with the leveraged amount can be wiped out very fast.
Plan the trade before entering and use hard stops, even if you have a soft one.
Do not exaggerate with the leverage levels and try to minimize it.
Use adequate safety percent to realistically match the risk-reward preference.
Stick to the plan of trade, gain profits, and never increase the limit.
Traders need to have tight restrictions, in the case when the currency pairs undergo volatility, spikes, and average distances daily.
A hard stop loss should be chosen depending on the strategy.
The time frame for trade should be shorter and also one should try to analyze the market, the currency patterns.
During fast markets, one can get cover as the exit is triggered automatically.
One can cover positions with it as it becomes easier to handle the condition of loss.
One is susceptible to wick stop-outs.
Slippage can result in difficult conditions.
Sometimes, certain automatic algorithm triggers weak exits that one may not consider if they handle it manually.
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