If you go through any forex trading book (Check out Bird Watching In Lion Country book) you might probably see the terms stop/loss and limit order. What are these terms and how they help you to make money from forex trading?
There are 2 different conditional order that one could order while dealing with foreign exchange. They are the stop loss and the limit order. They are called conditional orders because they wouldn’t come into effect unless pre-determined circumstances are met.
The stop loss is a common order that holds the risk attached to trading. With a stop loss, you are informing the foreign exchange broker, “If the trend goes against me till this point, I want close the trade.” Hence if you have purchased a forex pair hoping a hike in price, but unfortunately the price falls, your complete balance in account will not be vanished.
On the other hand a limit in used in opposite condition, the circumstance where you have a prosperous trade. With a limit order, you are informing the foreign exchange broker, “If the price reaches this level, that’s enough, I’ll close there and take it.”. Once set, the limit order will be activated if your desired price is attained and the trade will be closed at this price.
Many fresh currency traders are afraid to utilise limit orders when they start out. In their point of view limit order seems illogical. After all if the market is moving your way, why would you need to stop? Wouldn’t you want to hold on as long as possible to get the most profit out of it? The problem with this approach is that sooner or later the price will turnaround, and oftentimes it does it sooner rather than later. If you do not place a limit order, when will you close the trade? How will you recognize when it has gone as far as it is going? If you hold way too long, a sudden reversal could see all of your net profits wiped out.
And So only if you have a Fx system that is set up with accurate figures to tell you when it is time to close a trade, you will perform better by using limit orders.
Applying limit orders has another benefit as well. When you have both stop loss and limit order in your account, you may move away from your computer. Although you won’t get the kind of freedom that you can accomplish through automated forex trading robots, with limit order and stop/loss in place you don’t need to watch every tiny fluctuation of price while trading. This dilutes stress and makes it less likely that you will panic and move away from your original trading plan. So practicing limit orders in currency trades creates a happier, more profitable trader.
Now that you learned about the benefits of limit orders you might be thinking of utilizing limit orders on your forex account. But remember that you have to test first on demo account and obtain how limit orders work before trading on a live account.
For complete hands-free forex trading we suggest you to get a good automated forex trading software such as Forex Black Panther software.