Forex Investment and Currency Trading

Limit Orders (Take Profit)

Use a limit order to protect your profits. This will get you set up to exit the Forex market as planned without letting your emotions get the better of you. Avoid being tempted to ride a gain that could turn into a loss by sticking with the trade for too long.

If you are shorting a currency pair (selling), your broker’s system should allow you to place a limit order below the current market price. When selling a currency pair, the profit zone is below the current price. The opposite is true if you are going long (buying) on a currency pair.

The system will allow you to set up a limit order to secure your profit at a price above the current market price. When buying a currency pair, the profit zone is above the current price. The take-profit order helps you maintain a disciplined trading strategy.

Don’t set it up or change your limit order after watching your order for a while without carefully review and updating your fundamental and technical analysis. Set up the limit order at the same time as you make your trade.

Since you don’t pay commission, you can always develop a new plan to buy or sell the same pair again, so it’s better not to get into the practice of changing your limit or stop/loss orders. Instead, let them play out and develop a new plan for the next trade based on the information learned during your previous trades.

Stop-Loss Orders (Minimize Loss)

Use stop-loss orders to minimize your losses. Set up your stop-loss order at the time of your trade to protect yourself from being driven by your emotions. A stop-loss order lets you set up an exit point as you enter a trade that will get you out of your trade before your losses become too large.

It you short a currency pair, the stop-loss order should be set above the current price. Remember that when you are shoring a pair, the profit zone is below the price of the pair. If you go long on a currency pair, set up your stop-loss order below the current market price.

Obviously, you hope your stop-loss orders will never be needed, but don’t forget to set them. When they are needed, you want the logic you used to set your entry and exit prices as you developed your plan to be in control, not your emotions.

Picking the Right Points

You’re probably wondering how to determine where to set your limit and stop-loss orders. Many traders set their stop-loss orders closer to their opening price than their limit orders.

For example, a guideline you can follow when you’re getting started is to set your stop-loss point at 30 pips and your take-profit orders at 100 pips.

Where you set your stop-loss and limit orders is purely up to you. The tighter the point, the less risky your trade will be, but remember if you set your order points too tight, normal market volatility could trigger your order long before you want it to do so. To make money you have to move outside the normal volatility range, so you do have to take some risk.