How to use Stop Loss and Take Profit

How to use Stop Loss and Take Profit

How to use Stop Loss and Take Profit

Stop loss and take profit are the most important tools on Forex Trading and is just as important as the analysis one would apply on every trade they make. In this article, we present a brief guide to using stop loss and take profits and also present a detailed tutorial into how to set the Stops and target levels using the MT4 trading platform.

Stop loss (SL) is a target set by the traders on their trade which will automatically close the trade  if the market goes against them.Stop loss is very usefull on forex trading as it autometically close the market if the Market reaches the Sl. It can save trader from huge loss.


Take profit (TP) is a target set by the traders on their trade which will automatically close the trade  if the market goes in favor to them. Since the market fluctuate alot TP will help secure the profit.

Stop loss and take profit levels are static in nature. In other words, the orders are triggered (and your trade is closed) when a security reaches a specified price level.

For example, if you placed a Sell order on NZDUSD at 0.6570 and set stop loss at 0.6595 and take profit of 0.6543, when price moves below your entry and hits  0.6543 your order is closed for a profit of 33 pips. Likewise, when price moves to 0.6570, your order is closed for a loss of 25 pips.

What is Trailing stop:
Trailing stops are dynamic in nature. When using trailing stops the stop price level changes after a specified number of pips. Some trading platforms allow you to also set a trailing stop based on percentage moves as well. Trailing stops are very applicable when you want to take as much of profits as possible during extreme trends. For example, setting a trailing stop of 30 Pips would mean that a new stop loss would be set when price moves 30 pips in your favor.

For example, if you placed a Sell order on NZDUSD at 0.6570 and set the initial stop loss to 0.6595 and a trailing stop of 10 Pips, then if price moves 20 pips in your favor the new stop loss would be moved to 0.6585. If price continues to move a further 20 pips, then the trailing stop moves another 10 pips in your favor setting your new stop loss order to 0.6575 (thus locking in 10 pips of profit).

Disadvantage of using SL/TP/Trailing Stops.
No one knows that the exact movement of the market. If Stop loss is placed without proper knowledge it can be taken out as the market swings.
      If the market is not extremely trending Trailing stops also will be taken out when the market fluctuate.