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Chapter 5, Part V. Order types in FOREX Page 5

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 15, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Special case of Stop order type –Stop Loss Order (S/L)

    A Stop Loss Order (S/L) uses for limit your loss from particular trade. As with Take Profit Order, you can understand from its name that the major purpose of this order is to stop your losses at some predetermined level when the market runs against you. This type of order, so as T/P, is used for closing the initially opened position. Other words, S/L can’t exist by itself, without position, because it assigned for closing the position that is already existed. But, as opposed to T/P order, S/L fixes the loss on your position, not the profit.

    For example, if you have a Long position on GBP/USD at 1.5420, you may place a Stop Loss order somewhere below initial entry point, for instance at 1.5380. In this case your potential losses will be limited by this level, if your analysis will appear to be wrong and market will run against you. If market will reach this 1.5380 level or lower, then your order will be filled - software will close your position and fix loss at 40 pips. (if order will be executed pips to pips).

    When, instead you already have a Bearish position, say, at the same 1.5420 level, you may place a Stop Loss order somewhere above initial entry point, for instance at 1.5490.

    As you can see, the nature of S/L order is the same with simple Stop Order. S/L also uses when you want to buy at higher price or to sell at lower price than the initial entry price. And it also uses when you expect the continuation of market move in the same direction, as before the order. Although in the case of S/L order this move will be unwelcome.

    There is the same difference with S/L and ordinary Stop order, as with T/P and Limit Order. S/L is linked with existing position and is used for closing it, although with loss.

    Our conclusion here - A STOP LOSS IS A MUST.

    [​IMG]

    This is the same picture as for Market order type. Here you can see, that software allows you to place S/L and T/P orders simultaneously with opening the new position, because they are exceptionally important. You can place them, even when you are initiating a new position with a simple Market Order.
     
    #1 Sive Morten, Dec 15, 2013
    Lasted edited by : Feb 7, 2016
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