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.
*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 will learn:
Let’s have a look how to use them on our xStation 5 platform to ensure you know how to control 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.
Simply enter a particular price level in Stop Loss or Take Profit fields. Remember that a Stop Loss will be executed automatically when the market moves against your position (hence the name: stop loss) and Take Profit will be executed automatically when the price reaches your specified profit target. If you’re long, you’re allowed to set a Stop Loss level below the current market price and a Take Profit level above current market price. If you are short, then the stop loss must be placed above the entry level, and the Take profit should be below the opening price of your trade.
It’s important to remember that a Stop Loss (SL) or 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 using trade line on the chart. 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.
There are also two ways of adding Stop Loss and Take Profit levels through the Terminal module. Firstly, to add or modify SL/TP levels simply double-click on your opened or pending order and a new window with trade details will open. The order modification window will appear and now you’re able to enter/modify SL/TP by exact market level or by defining points range from current market price.
The second way is even faster. All you need to do is to specify the levels right from the terminal. You just click on the “+” button in either SL or TP column and you enter your levels. As you can see, it’s really simple and comes in handy when you need to make quick trading decisions.
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.
If that sounds confusing - don’t worry, it’s very simple to understand.
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. However, if you are trading on xStation, your Trailing Stops are 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 Take Profit level and the current price in Trailing Stop menu.
After that Trailing Stop is now activated. From now if price changes in the profitable market side, TP will make stop loss level follow the price automatically.
Trailing Stops can be easily deactivated by clicking on the trailing stop box in the trade modification module.
As you can see, xStation 5 provides you with plenty of ways to protect your positions in just one second. Remember however that all trading carries a level of risk and trading CFDs on a leveraged basis involves significant risk of loss to your capital.
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A Trailing stop on xStation 5 will be executed when:
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