*Please be informed that the MetaTrader 4 (MT4) trading platform is no longer available for newly created accounts (investment accounts). It is, however, still available to existing users who have been using the MT4 platform so far. We encourage you to check out our modern, extremely intuitive, award-winning trading platform - xStation 5!
*Since the recording of these videos, negative balance protection has come into force from 02.10.17. This means that whilst trading losses cannot exceed funds in your account, your capital is still at risk.
In this lesson you can learn:
As we’ve already explained in our Basic Terms and Vocabulary tutorial, one of the keys to achieving success in financial markets over the long term is prudent risk management. That’s why stop losses and take profits should be an integral part of your trading.
So let’s have a look how to use them on our MT4 platform to ensure you know how to limit your risk and maximise your trading potential.
Setting Stop Loss and Take Profit
The first and the easiest way to add Stop Loss or Take Profit to your trade is by doing it right away, when placing new orders.
To do this, simply enter your particular price level in Stop Loss or Take Profit fields. Remember that Stop Loss will be executed automatically when the market moves against your position (hence the name: stop losses), and Take Profit levels will be executed automatically when the price reaches your specified profit target. This means that you’re able to set your Stop Loss level below the current market price and Take Profit level above current market price.
It’s important to remember that a Stop Loss (SL) or a Take Profit (TP) is always connected to an open position or a pending order. You can adjust both once your trade has been opened and you’re monitoring the market. It’s a protective order to your market position, but of course they are not necessary to open a new position. You always can add them later, but we highly recommend to always protect your positions*.
Adding Stop Loss and Take Profit Levels
The easiest way to add SL/TP levels to your already opened position is by a using trade line on the chart. To do so, simply drag and drop the trade line up or down to specific level.
Once you’ve entered SL/TP levels, the SL/TP lines will appear on the chart. This way you can also modify SL/TP levels simply and quickly.
You can also do this from the bottom ‘Terminal’ module as well. To add or modify SL/TP levels, simply right-click on your open position or pending order, and choose ‘Modify or delete order’.
The order modification window will appear and now you’re able to enter/modify SL/TP by the exact market level, or by defining the points range from the current market price.
Stop Losses are intended for reducing losses when the market moves against your position, but they can help you lock in your profits as well.
While that may sound a bit counterintuitive at first, it's actually very easy to understand and master.
Let’s say you’ve opened a long position and the market moves in the right direction, making your trade a profitable one at present. Your original Stop Loss, which was placed at a level below your open price, can now be moved to your open price (so you can break even) or above the open price (so you are guaranteed a profit).
To make this process automatic, you can use a Trailing Stop. This can be a really useful tool for your risk management, particularly when price changes are rapid or when you’re unable to constantly monitor the market.
As soon as the position turns profitable, your Trailing Stop will follow the price automatically, maintaining the previously established distance.
Following the example above, please bear in mind, however, that your trade needs to be running a profit large enough for the Trailing Stop to move above your open price, before your profit can be guaranteed.
Trailing Stops (TS) are attached to your opened positions, but it’s important to remember that if you have a trailing stop on MT4, you need to have the platform open for it to be successfully executed.
It's worth mentioning that if you're using xStation instead of MT4, your Trailing Stops remain in place even if you log out.
To set a Trailing Stop, right-click the open position in the ‘Terminal’ window and specify your desired pip value of distance between the TP level and the current price in the Trailing Stop menu.
Your Trailing Stop is now active. This means that if prices change to the profitable market side, TS will ensure the stop loss level follows the price automatically.
Your Trailing Stop can easily be disabled by setting ‘None’ in the Trailing Stop menu. If you want to quickly deactivate it in all opened positions, just select ‘Delete All’.
As you can see, MT4 provides you with plenty of ways to protect your positions in just a few moments.
*Whilst Stop Loss orders are one of the best ways to ensure your risk is managed and potential losses are kept to acceptable levels, they don’t provide 100% security.
Stop losses are free to use and they protect your account against adverse market moves, but please be aware that they cannot guarantee your position every time. If the market becomes suddenly volatile and gaps beyond your stop level (jumps from one price to the next without trading at the levels in between), it’s possible your position could be closed at a worse level than requested. This is known as price slippage.
Guaranteed stop losses, which have no risk of slippage and ensure the position is closed out at the Stop Loss level you requested even if a market moves against you, are available for free with a basic account.
This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.