One of the key dilemmas forex traders have to deal with after getting in the trade is how they should deploy their strategies. A key strategy used by traders on the MT4 platform to protect them from damages is the stop loss. This strategy is great because it informs the user of the anticipated gains or losses. That information helps traders plan their deals.
In order to get the most out of the strategy, you need to put in the right measures in place. Among the most important measures is calculating the exact value of the stop loss and then placing it at the right point. Here is how to effectively calculate and deploy the stop loss.
How To Correctly Determine A Stop Loss
Most indicators on Metatrader 4 use asset prices to show the changes occurring on the market. These changes are usually represented by pips, ticks, or points. The funds in the trader’s account are also represented on the trading platform. Generally, a stop loss can either be calculated against the changing asset prices or against the trader’s currency. When calculated against the currency, the trader is able to know exactly how much they stand to lose in case a trade fails to materialise. In general, the difference between the entry point of the stop loss and the exit point represents the assets that have been put at risk.
How To Place The Stop Loss
The position where you place the stop loss should be based on your expectations of the market. If you place it at a low price bar when buying, then you expect the price to go up. If the price goes contrary to expectation, the stop loss should help you exit the trade before the prices decelerate further. The opposite is true when you are short selling. In that case, the stop loss should be placed above the most recent high bar. The placement of the stop loss should also be informed by the calculations you make in the first step.
Eliminating Vulnerabilities When Using The Stop Loss
All trades present opportunities and risks. Even though the stop loss is a great strategy for controlling the risks, other measures should be taken to completely minimise the chances of risky moves. The most important of all is to allocate a reasonable amount of funds when engaging in a trade. Any amount of funds used with the stop loss should be inconsequential in case the trade stumbles. In general, the percentage of funds being risked in a trade should not exceed single digits for each trade.
In conclusion, it is always recommended to use the stop loss in all trades. The calculations that determine its value and the position it is placed all depend on the individual account of every trader. The success of the strategy also depends on the objectivity the trader invokes when trading. All business actions should be based on logic rather than emotion. The urge to invest in promising but unproven opportunities should thus be avoided when using the stop loss.