Six Kinds of Stop In Forex What You Should Know

Six Kinds of Stop In Forex What You Should Know

If you are ready to trade seriously and already know financial management in our previous article, then there are four kinds of stops that you should know. Check out the following reviews.

Equity Stop

This is the simplest Stop type. Traders only risk a set amount of funds on their trading account at one trading position.

Typically, the trader will only risk 2% of the equity on each trading. On a $ 1,000 trading account, the risk will be $ 200, or about 200 points, if using one mini lot, or just 20 points on a standard lot. Aggressive traders may consider using a stop at 5% equity, but note that this value is usually regarded as the maximum limit of wise financial management. Because if 10 wrong trades in a row will only result in a losing account of 50%.

One of the strong criticisms of the equity stop is that the exit level is determined at will by the trader. This trading position is liquidated not as a result of the logical response of price action on the market, but rather to fulfill the trader’s internal risk control.

Chart Stop

Technical analysis can generate thousands of possible stop levels, triggered by price action on the chart or by various technical indicator signals. Technically, traders tend to combine this exit level with the standard equity stop, to formulate the stop chart. A classic example of a chart stop is when swing high / swing low.

Volatility Stop

A better stop mode than a stop chart is to use a stop of volatility rather than depending on the price action to adjust the risk parameter. The idea is that traders need to adapt in high volatility environments. Instead applies to low volatility environments, where risk parameters need to be compressed.

One easy way to measure volatility is through the use of Bollinger bands, which use standard deviations to measure price variations.

Note that the total position risk exposure should not exceed 2% of the account, so it is important that the trader uses many smaller lots to correctly account for his cumulative risk in trading.

If you are ready to trade seriously and already know financial management in our previous article, then there are four kinds of stops that you should know. Check out the following reviews.

Equity Stop

This is the simplest Stop type. Traders only risk a set amount of funds on their trading account at one trading position.

Typically, the trader will only risk 2% of the equity on each trading. On a $ 1,000 trading account, the risk will be $ 200, or about 200 points, if using one mini lot, or just 20 points on a standard lot. Aggressive traders may consider using a stop at 5% equity, but note that this value is usually regarded as the maximum limit of wise financial management. Because if 10 wrong trades in a row will only result in a losing account of 50%.

One of the strong criticisms of the equity stop is that the exit level is determined at will by the trader. This trading position is liquidated not as a result of the logical response of price action on the market, but rather to fulfill the trader’s internal risk control.

Chart Stop

Technical analysis can generate thousands of possible stop levels, triggered by price action on the chart or by various technical indicator signals. Technically, traders tend to combine this exit level with the standard equity stop, to formulate the stop chart. A classic example of a chart stop is when swing high / swing low.

Volatility Stop

A better stop mode than a stop chart is to use a stop of volatility rather than depending on the price action to adjust the risk parameter. The idea is that traders need to adapt in high volatility environments. Instead applies to low volatility environments, where risk parameters need to be compressed.

One easy way to measure volatility is through the use of Bollinger bands, which use standard deviations to measure price variations.

Note that the total position risk exposure should not exceed 2% of the account, so it is important that the trader uses many smaller lots to correctly account for his cumulative risk in trading.

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