The Importance of Using Stops

September 25, 2017 10:28AM CDT

Setting stops may be more appealing to the conservative trader; however they are beneficial for all types of traders. Stops aid in limiting loses as well as locking in gains. Stops can be set when a trade is placed, or after the position in the market has already been taken.

Utilizing technical levels when setting stops is a good way to gauge the range of risk and reward you would like to see. By analyzing trends and working with charts, the levels can become more apparent. Our platforms allow you to dive into charts to visually assist in choosing your risk ratio that you would like to set. An example of this could be looked at in the gold market. If you entered in the market in a long position at 1299, you could set a target at 1301 with a stop at 1297. This is considered a 1:1 ratio since both the profit target and stop are the same distance away from the original buy. This example can also be rotated if you are short the gold market with a profit target at 1297 and a stop set at 1301. The ratio remains 1:1. Depending on your level of comfort, these profit targets and stops can be extended to a further level allowing for a larger potential profit or loss.

If you would like a more in depth read on protecting yourself as a trader, consider downloading our Risk Management guide

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