As many have already noticed IQ Option has added Forex to its collection of trading tools. The approach of this event was truly innovative and engaging, and therefore, as a consequence we are happy to introduce you a trading benefits of Take-profit and Stop-loss orders (SL/TP). Because the control of SL/TP is one of the key concepts at Forex market.

Getting profit from the deal at the right time is as important as to determine the optimal moment of its stop. Price fluctuations is an integral part of the life of the market, and what once seemed like a positive trend in one moment can totally opposite turn into a sudden decline.

Common belief says that it is always better to take profit now rather than wait and risk losing possible earnings. Remember that giving profit to grow without closing the deal prematurely is not bad, because it is the way for a part of the potential profits is formed. But in any case you should not get involved and wait until the last, because the chances to keep or lose are equal.

Traders use Take-profit and Stop-loss orders to prevent unnecessary potential financial risks. This occurs through the confining of loss and an automatic closing position, thereby ensuring the timely receipt of profit from successful deals that will help to keep the potential profit from fluctuations at the market. In other words, these features help to create a “safety net” for traders in the case of impulsive, premature and rash solutions by trading online.

In simple words, the principles of work of Take-profit and Stop-loss are the same, while their definition are different. Take-profit orders gives you the opportunity to take off money at the peak of the transaction. And the essence of Stop-loss orders lies in minimizing of the expenses of the trader. The trader can set SL/TP orders over the already existing, as well as over pending trading. But it is worth to remember, that they will be performed only at open positions and not in case of pending orders.

 

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So, what kind of miracle Stop-loss and Take-Profit orders are? Why should a trader use it in trade?

Stop-Loss order

Stop-loss is a convenient way to minimize losses from the deal, if the price of the chosen asset is beginning to change – progressing in an unprofitable trend. In other words, this it lets trader to send this order to his Forex broker and limit its possible losses on a current open position. The position of a specific deal is automatically closed at the current market price when the price of the chosen asset reaches a current level. Thus, trader minimizes his potential losses from the ongoing trade. It is important to note that Stop-loss price does not have to be the price of the Stop-loss order execution, that is, it can also be used if price gap occures.

Stop-Loss order opening

When you open Stop-loss orders a trader it is necessary to determine the amount, which you willingly ready to risk in the implementation of each specific deal. In its turn, a special calculator atIQ Option trading platform will automatically perform all the necessary calculations for a setted amount of interest depending on the value of the initial investment. The success of the trader will consist of a timely response and ability to pre-close the transaction to not incurre the losses. Every trader develops these skills after the lapse of considerable time with the an accumulated trading experience. Top traders share the usefulness of these orders, as not just the amount of money trader is willing to “sacrifice”, but also to ensure that it is reasonably use to the conditions of the market as a whole.

3 basic techniques of determining the optimal Stop-Loss orders:

• “Percentage stop” is used to determine the position of Stop-loss orders, based on the amount of investment that a trader is willing to risk at any given moment of trading process. With all this, Stop-loss order depends on total capital and the amount of invested funds. But remember, one unwritten rule of experts, who recommend to allocate a Stop-loss order only approximately 2% (not more) of the total amount of trading capital per one transaction.

• “Graphic stop” – a method oriented for the most part on a technical analysis in contrast to the rest of the methods. As experience shows, the optimum Take-profit and Stop-loss orders allow to determine the levels of support and resistance. Specifying the point of Stop-loss beyond these levels is in itself one of the methods of how it can be done. Trader gets a good chance, when the market trades outside of these areas, as trends continue to work against you. As a result, it will be the time of collecting the remainder from the investment.

• “Volatility stop” is “desirable thing”, that noone wants to miss. As practice shows, the Volatility stop can be pretty much different for various assets. This significantly affects on the trade, because knowing what range of price movement whether stocks or commodities, trader will be able to set the optimum Stop-loss order. You should always remember that all volatile assets require a high attention to risk creating, and as a result, expectation of higher levels of Stop-loss orders.

Take-Profit order

Take-profit orders allow to close the deal with a profit, when the price of asset reaches a certain set level. The execution of this order provides to closing the deal under the rules of limit orders. Take-profit can be set only at the open position, stop order and/or pending order.

It is recommended to use technical analysis tools for Take-profit orders to determine the ideal moment for closing the deal right in front of the trend reversal. Pay your attention on Bollinger bands, Average Directional Index and/or Relative Strength Index, as all of them are best suited for controlling Stop-loss and Take-Profit orders.

(!) little note: it is recommended to use the ratio of risk-reward equal to 1:2. So, rader will be able to retain profitability constantly on a long term basis, even with an equal ratio of failed and successful transactions. But this does not mean that this ratio is the essence and the Golden rule which must be followed. You should always correct any advice according to your spesific trading strategies. In this case, look for your optimal risk-reward ratio, because none of the known rules does not work the same way for an individual asset as mmuch as for each trader.

Simply saying, the traders use SL/TP orders to correctly leave the market at the right time. Most of the traders uses Stop-Loss orders in opposed to Take-Profit orders, as they probably feel them less necessary. However, in our opinion, this can be wrong, because Take-Profit orders help to avoid many problems and allow to save money in carrying out of the deals on a winning position.

Those traders use SL/TP orders, are not obliged to continue the trade, till the asset price reaches a predetermined level. Everyone is free to close the deal under unfavorable price movements at the market. Don’t let your emotions make decisions. Give it the right, cold and objective decision. Because doing it impulsive can be often the most devastating, leading to unreasonable losses. This unwritten rule works in the case of determination of ST/TP orders.

 

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“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

Take-profit and Stop-loss on the IQ Option platform!
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