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Placing The Proper Stop Loss

The proper way of placing stop loss can avoid your trade close earlier

Placing a safe stop loss and profit target is a nice weapon in forex trading. A risk-aware forex trader should use stop-loss in every trade. Many traders make the mistake of placing the correct Stop-Loss.

Are You Able to Set SL Correctly to avoid false Triggered?

Sometime you may notice your trade hit your stop loss early and make you out from the trade through the chart price does not reach the stop loss price. This is due to the Ask price and the spread.

You may know about BID and ASK price in forex trading. The Bid price is the price that that market offers to the seller to sell a currency pair. The Ask Price is the price that the market offer to the buyer to buy a currency pair. The difference between the Bid and Ask price is the spread. Due to this difference sometime a Seller may get the SL triggered earlier than the chart price reached to the place SL price. When you see you got out from the trade by false triggering your Stop loss then back to the positive zone, but you can’t enjoy the Profit, this makes you so disappointing. For this reason, traders should know how to place the proper Stop loss to avoid such a situation.

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How to Calculate The Correct Stop Loss

Wherever you trade if you know how to place proper stop loss you can be benefited. False SL triggered can create problem mostly on a selling trade for the large spread broker. To avoid this problem we should use the bid price to place SL. The bid price is the original price that shows on the chart and trade is counted TP/SL hit based on the original chart price. Ask price is larger than the bid price depending on the spread.

How To set Proper Forex Stop Loss

As you can see in the above picture the difference between Bid and Ask price is 2 pips. The Bid price is 0.70586 due to spread the Ask price is 0.70606. The Ask price is 2 pips ahead of Bid price.

In the case, if you are a seller of the pair the Ask Price will come to play and it will be considered to trigger your stop loss and take profit. So It will reach to the Stop Loss before the Chart/Bid price has reached that triggered your Stop loss and make you out from the market. sometime you may see the market goes back to the positive direction after hitting your stop loss but you are not able to enjoy the profit because you got out from the trade because of early hitting your stop loss. To avoid spread widening by broker or false triggered of Stop Loss you need to add 2 pips with your SL. Suppose your SL is 0.70563, you need to 2 pips more with that price and your Stop loss will be   0.70583.

In the case, if you are a buyer you can use the chart for you Stop Loss and Take Profit because this time Bid price/chart price will be considered for the Stop loss and take profit.

If your broker’s spread is variable then add the highest possible spread with the Stop loss of the concerned pair.

Similar Article:

1. Problems triggering proper stop and Few Steps to Avoid

2. Discipline in Forex Trading [5 Best Practice]

3. What is Forex Trading?

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