Forex Money Management-4a

Learn to use Stop Loss effectively


Still unsure whether you need it?


Every day hundreds of Forex traders blame themselves for being so naive and trading without protective stops. Hundreds of others lose funds worth weeks, months & even years of trading just only in one very unsuccessful trade.

And yet another hundreds of traders, having heard dozens of times about importance of protective stops, open new trades ignoring the well known money management rules.

Stop loss isn't often a favorite tool for many Forex traders as it requires taking necessary losses, calculate risks and foresee price reversals. However, a Stop loss tool in hands of a knowledgeable trader becomes rather a powerful trading weapon than a cause of disappointment and painful losses.

Every trader is free to develop his / her own trading style and implement own money management rules. We will go over several methods of using Stop losses.

1. Simple equity Stop

this rule, a trader would place an order and based on a lot size would calculate amount of pips required to reach the 

It's an important money management rule: not to risk more than 2-3% of the total account per trade. According to 

limit of 2-3% of the total account balance (and a stop loss will be placed at that point).

For example: a trader has $1000 USD account, he places a buy order of 4000 units on EUR/USD, which will give him on  average $0.40 cents per 1 pip. Since 2% risk that he is willing take equals $20 USD ($1000 * 2%), calculations will be next: $20 / $0.40 cents = 50 pips is the limit for this trade.