One of the most important components of forex trading strategies is risk management. While fx trading strategies also involve the analysis of the market, you should pay as much if not more attention to which risk management techniques you include in your strategies.
The simplest and most effective technique of risk management is the use of special orders. Here is some information on special orders with special focus on the most useful special orders i.e. stop loss and take profit. With this knowledge, you should be able to incorporate them into your trading strategies.
What Are Special Orders?
Market orders are the standard type of orders that traders use. These are simple buy or sell orders. In contrast, special orders are market orders with special conditions attached to them.
There are various ways through which you can use special orders. How innovative you get with them in your forex trading strategies is entirely up to you. The two most popular and also most effective special orders are stop loss and take profit.
Stop loss orders are mainly included in forex trading strategies as a form of protection against unexpected market trends. No trader can ensure 100 percent accuracy in his analysis of the market. Stop loss orders come into play in those moments when a trader’s projections backfire.
If you were to include stop loss orders in your trading strategies then you would have one more layer attached to your trading process. According to this layer, every time you place an order, you would have to define a forex rate point below which you do not want the currency’s value to drop.
By defining this point, you would be giving the system an order that when the currency’s value drops to that point, your position would be closed automatically. The purpose of stop loss orders in trading strategies, hence, is to minimise loss.
Take profit orders can be treated as being on the other end of the spectrum from stop loss orders. While stop loss orders are used by traders in their forex trading strategies to minimise their losses, take profit orders are used to ensure that profits gained are not lost due to an unforeseeable turnaround in forex rates.
Essentially, if you were to use take profit orders in your FX trading strategies, you would have to specify a forex rate point of profit at which you would be very happy closing your position.
Once the system has this point, it would close your position as soon as your currency’s value reaches that point. Thus, you forex trading strategies would make your investment safe even if the market reverses its trends.
How to Place Special Orders
The placement of stop loss and take profit orders is often wrong with new forex traders. The safest forex trading strategies include the placement of these orders on the basis of a single rule. This rule puts stop loss orders very close to the initiating price and the take profit point farther away from it.