CHAPTER 5 - LESSON 2
Stop loss and take profit orders are key risk management tools used in forex trading.
A stop loss order is an order type to exit (or close) a trading position at a specified price in order to limit potential losses, while a take profit order is an order type to exit (or close) a trading position at a specified price in order to lock in profits.
Here is key information to know about setting stop loss and take profit levels:
Should be placed at a level that represents an unacceptable loss for the trader. Traders should consider the volatility of the market and the potential risk of a trade when setting their stop loss level.
Should be placed at a level that represents an acceptable profit for the trader. Traders should consider the potential reward of a trade when setting their take profit level.
Should be set at a specific distance away from the current market price. Traders use trailing stop loss orders to lock in profits as the market moves in their favor.
The amount of currency a trader buys or sells in a trade. Traders should use position sizing to limit their potential losses on a trade.
By setting these orders, traders can limit their potential losses and lock in profits. It is important to remember that stop loss and take profit orders should be placed based on careful analysis and consideration of market conditions, and should be adjusted as market conditions change.
In summary, traders should consider the potential risk and reward of a trade and set stop loss and take profit orders to manage risks. Traders should use trailing stop loss orders to lock in profits.
Traders should also be mindful of position sizing to manage their risk. We will examine more on this in the next section.
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