Common mistakes forex traders make when placing stop-losses. When you learn Forex management strategy, there is no doubt that you are always being recommended to utilize proper risk management in trading. This is because a proper risk management is able to prevent you from big losses in the market. However, when the risk organization here is not utilized properly, it can surely lead you to more losses instead of wins. 

Common Mistakes that Traders Do When Placing Stop-Loss

When we are discussing about Forex risk management, one of the things that will be essential at this point is setting a stop-loss. A successful Forex trader must know the best way to set their stop-loss. However, there are some common mistakes that many traders do when placing this stop-loss. And here are some of the biggest mistakes that you should keep in mind. 

#1 Setting Stop-Loss So Tight

This is definitely one of the most general mistakes that many traders make. It’s inevitable that Forex market can change unpredictable in such short time period. At this point, placing your stop-loss too tight will lead you to high opportunity of stopping out before the price persists to go in your direction. The best way to do is giving the price adequate space to “breathe”.

For instance, setting a 10-pips stop-loss whilst going into a long position on the daily chart of EUR/USD has a high tendency to close your position in term of minutes even though you are planning to hold the position for several days. At this point, it is suggested to always concern about the pair’s price volatility and don’t set it too tight when setting stop-loss.

#2 Utilizing a Dollar or Pip Amount as a Base for Stop

It is always better for you to set stop-loss regarding on actual behavior of the market utilizing a stop-loss according to an arbitrary amount of dollar or pip has nothing to do with the Forex market. You can learn more about how to decide your position size derived from risk each trade. You need to always utilize a good analysis when placing your stop-loss.

#3 Setting Stop-Loss Too Wide

This is another popular mistake made by Forex traders: placing stop-loss so wide from the opening price. At this point, stop-losses seem to lose their real purpose. You need to always be concerned about your reward/risk ratio. For instance, setting a 300 pips stop-loss on a day trading, calls for a 900 pips profit target in order to keep a 3:1 reward/risk ratio. 

#4 Setting Stop-Loss Exactly on Support/Resistance Level

It is bad to set stop-loss to wide and tight. So, where exactly is the best place to put it? Well, it is precisely not on support or resistance level as well. Even though this level is useful to help you decide on where to place a stop-loss, you shouldn’t place it exactly there. Instead, set the stop-loss several pips below or above the levels.

In this case, although when the level of support and resistance seize, the price is likely to at any rate stroke them before fluctuating direction. You will be closed out although when your trades acquired a high possibility to success. That’s why it is essential to make sure that you don’t set your stop-loss precisely on the support/resistance level.

The Bottom Line

In brief, there are several common big mistakes that made by traders when placing stop-loss such as setting it too tight or too wide. In order to get the most of your risk management in trading Forex, keep in mind to avoid those mistakes on setting stop-loss. Then, don’t forget to keep on learn Forex too because the market always changes.