How to employ a stop-loss and take-profit in trading foreign exchange, as a trader especially a rookie who has just entered the world of foreign exchange, it is highly important to learn Forex properly. It is crucial to know the basics of every important aspect in Forex trading. At this point, stop-loss and take-profit are some of the most important things to know before entering Forex market. In this article, we will learn further about it.

How to Use a Stop-Loss and Take-Profit

It is extremely essential to know how to place a stop-loss as well as a take-profit in Forex trading. A trader needs to know when is the best time to set a stop-loss and a take-profit in order to make sure that they can maximize their profit in the Forex trading. But, what are these two all about actually? Let’s learn it as follow.

What Are Stop-Loss and Take-Profit?

Both stop-loss and take-profit are known as the important parts of trade management. But, what are these two all about? A stop-loss refers to an order you send to instruct your broker on limiting the losses in certain trade or open position. On the other hand, take-profit is an order you send to notify your broker that you want to close your trade or position. 

How to Set Stop-Loss in Forex Trading

Now let’s start by taking about how to set stop-loss. The first thing to consider is that you need to place stop-loss in logical level. It means you should set it in a level which will inform you when your trade signal is not valid anymore and that certainly makes sense in the surrounding structure of the market. Then, how to calculate this stop-loss?

Understanding how to estimate a stop-loss is surely important. But, you should remember that the main purpose of a professional trader when setting a stop-loss is to set a stop at a level which grants a trade room to move in their favor. That’s why when you are analyzing the best place to set your stop-loss, you should consider such logical level.

The logical level here refers to the closest level which the market will need to hit to truly prove your trade signal is not correct. Thus, stop-loss traders would like to provide the Forex market space to breathe and maintain the stop-loss nearby so that they can exit the trade immediately when the market goes against them. This is one key rule you should know.

How to Set Profit Targets

Outspokenly speaking, the most reasonable approach of using stop-loss as well as take-profit in Forex trading is probably the most technically and emotionally complicated aspect in Forex. The key trick is to exit when you get a respectable profit instead of hanging around until the market comes against you. What makes it difficult is that you are unlikely to exit when you are in profit.

Thus, your focus on using stop-loss and take-profit as strategy to gain profit in Forex should be about taking respectable profits. On the other hand, opt for taking 1:2 ratio of risk/reward or bigger if they are possible. At this point, you should first analyze the logical placement of stop-loss and then find a logical take-profit placement and a risk/reward ratio as well.

The Bottom Line

Every Forex trade is actually just a business deal. It is important to weigh both the reward and risk from the deal and then determine whether it is worth fighting for or not. In Forex trading, you should do it while dealing with stop-loss and take-profit placement. Finally, to trade more profitably, there is no other ways than learn Forex more.