How to Set Stop-Loss and Take-Profit in Forex

Risk management in forex trading is inevitable for any serious trader. Sometimes a trader opens a position and goes away to do other things. When she comes back, she finds that her trade favored her shortly and reached the next resistance or support level, but reversed back to the unfavorable region.

Another trader may experience loss from the start, and sees it going towards the margin call. When she comes back, her trades have been stopped out. Does that mean you have to stick around and watch your trades all the time?

Luckily, you can set a stop loss or take profit so that the order is automatically closed when the price levels reach your desired points.

What are stop-loss and take-profit in forex trading?

A take-profit (T/P) level is the point where you expect to lock in your profits automatically, while the stop-loss (S/L) level is the point where you set to accept loss to avoid further losses. Your trade is close automatically if it reaches your stop-loss or take-profit level.

The advantage of setting stop-loss and take-profit is that you do not have to worry about executing your trades manually. It also limits your emotional trading, which can be detrimental to your trading psychology.

It is important to understand where to set stop-loss and take-profit.

How to set stop-loss and Take Profit

Essentially, you should stop-loss a few pips below the resistance or support level depending on whether you are buying or selling the currency pair.

For example, if you are selling EUR/USD, you should set the stop-loss above the immediate resistance level. That is the case if you are trading forex using support or resistance.

If you are not trading support or resistance, you should stop-loss a few pips (preferably 5 pips) above the highest point of the previous candlestick in a downtrend. On the other hand, if you are buying the pair, you should stop loss below the support level or below the lowest point of the previous candlestick.

In the figure below, assume you want to sell the currency pair at the resistance level indicated by the long red line.

stop loss and take profit in forex

You can then set the take-profit at the next support level or somewhere you can earn profits below the resistance level, depending on your appetite. Just make sure you don’t set take profit below the next major support level because the price may bounce off support.

To set take profit in the above example, you can select the entry point line and drag it downwards. You can then set stop-loss by selecting the entry point line and drag it upwards to your desired point.

Another way of setting stop-loss and take-profit is by entering numerical values of those points when you are opening a new trade on Meta trader as shown below:

take profit and stop loss in forex

The purple circle and arrow indicate the stop loss value while the green circle is the take profit. These details appear when you select “New Order” on your trading platform. The selected figures should be the currency prices that coincide with your desired take-profit and stop-loss points on the chart.

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