Forex orders are the heart of good trading. The smart investor knows that they will not always be able to babysit their trades, so setting proper orders is a great way to carry out your wishes without falling prey to things sliding out of control before you know it. One type of order that new forex traders really need to understand are stop orders. However, there isn’t just one and that’s what makes it a bit confusing — and downright frustrating when you think about it.
We know that you really want to make sure that you’re looking at just about every angle you can think of when it comes to your upcoming trading portfolio. So if you want to learn your orders, you have to look into the four main types of stop orders inside and out. This guide will get you started.
There’s the chart stop order, which is very technical in nature. Traders like it because it lets you elaborate numerous stops that can be caused by the price charts’ action, or by other indicator signs. Candlesticks get involved as well, so if you don’t have a basis in technical analysis, you might want to make sure that you practice those skills before using a chart stop order. That’s the best way to really understand what’s going on. For example, the swing high/low point gets used, which would mean that a mini lot could get sold at the risk of 150 points depending on the chart, which would be 1.5% of a 10,000$ account — not that much in the long run, though it can be a little scary at first!
Our next stop order is the volatility stop order, which uses — you guessed it — volatility as the real chart stop. When prices move up and down quickly, the broker is going to need to let the position have a bit more room to breath and allow for more risk so that you don’t get stopped out.
By placing a volatility stop, you let the broker use a scaled-in approach to get a better breakeven point as well as better risk management.
The 3rd type of stop order would be the equity stop order. Newbies like it because it’s pretty easy to understand — you’re going to basically be just working the basics. The risk is focused on the predetermined amount of your account on the trade itself. So let’s say that you have $10,000 again, and a broker is going to risk $300 — let’s say that’s 300 points on a mini-lot of EUR/USD. This is pretty easy to understand because it works off of percentages of your account more than anything else. Brokers will take this very conservatively, because too big of an equity position in any single trade can really hurt your portfolio in ways that are hard to recover from. It’s just a matter of making sure that you have everything else taken care of — risk controls go well with stop orders of all kinds, but when it comes to the equity stop order things just make sense.