Take-profit (TP) and stop-loss (SL) are the two most important concept in the Forex market because it can minimize the losses during a massive market crash. Professionals always recommend the newbies to include these elements in their trading strategies as both of them are a part of risk management techniques.
During a massive market crash, many traders in Singapore can’t save their capital or investment from being destroyed by the bearish trend. It is true that the currency exchange market is controlled by a lot of external factors that nobody can control. Therefore, if you can set take profit and stop loss limit while trading, you can minimize the losses during the downtrend.
What is stop-loss and take-profit?
Stop loss (also called SL) is a limit that is set to limit the possible losses during an open trade. Take profit (also called TP or target price) is the limit that will inform you when you should end the trade once the market touchesthe predetermined value. An investor can try utilizing the MetaTrader software to practice with these orders and can learn a lot about these limits. Both of these orders will be triggered once the market touches the fixed value. Those who are looking for high end paltfrom like SaxoTrader, navigate here to get the perfect trading paltfrom to improve your trade execution.
If you are still not clear, let us show an example. Suppose you have bought EUR/USD pair at 1.3811 and can’t guess the upcoming movement. If stop loss order is set at 1.3801, the trade will automatically close once a bearish trend takes place in the market and touches the determined value (1.3801). If the take profit is set at 1.3821, the order will be triggered once the market touches the value (1.3821).
Why should every Forex trader use these elements during the trade?
If an investor looks at the chart and examines it correctly, he can easily realize why he should use it.
Entering a trade without setting stop-loss or take-profit value, one may face a severe consequence. If the market continues to crash, and the graph continues to fall, the investor will have nothing to do. He only has to face a massive loss. Setting a stop loss order could close the trades and could save him from facing severe losses. Remember that the currency exchange market has the potential to exhaust all the investment. At the same time, not using the take profit can reveal the account’s deposition to the market.
A trailing stop is a technique that is quite easier and safer to use. Stop loss and take profit limits can’t be changed once they are determined, but a Forex trader can easily change the trailing stop value when he feels that the market is moving in favor of his luck. However, once the trailing stop value is determined, you cannot move it back.
For instance, a trader buys the EUR/USD at 1.585 and sets the trailing stop at 20 pips. So, initially, his stop loss value is 1.565. When the market goes in favor of his luck, his stop loss limit will move to 1.585, and if the market continues to rise, the trailing stop will move higher. Therefore, it ensures that the investor can earn a decent amount of profit even when the market crashes.
Many FX experts suggest using the trailing stop along with the take profit limit. Instead of using the stop loss limit, using a trailing stop can be smart because a trader can change it whenever he wants. However, don’t jump to use this order without acquiring sufficient knowledge and experience about it. Use the demo account to realize the way it works and the way to use it. Remember that once the trailing stop is established, you can’t move it back.