In the foreign exchange and contract for difference market, traders are best at trading by using graphics and technical analysis, so when setting stop loss and take profit, they usually pay more attention to technical key points.
The first way to set a stop loss is to set it outside the recent highest and lowest prices.
The yellow circle in the figure is the buying price of the trader, so the correct setting method of the trader should be to set the stop loss at the red solid line below the blue box in the figure. The principle of this setting is that the blue box is the low point formed by the price. When the price falls to this low point again, it will be supported and it will be difficult to break through the low point. In this way, the positions that enter the market to buy up are relatively safe, and they will not stop and leave because of some price noise, and miss the later rising market.
The second way to set a stop loss is to set it outside the nearest integer price.
Traders short EUR/USD in the yellow circle 1. 1270, with the integer 1. 1300 above. In order to control the market risk, but not let the price noise touch the stop loss level, traders set the stop loss above the integer price of 1. 1300. We see that even if the price rises suddenly and rapidly in the later period, it will not break through the integer of 1. 1300, and it is not easy to touch the stop loss, which ensures the safety of the position.
The last issue that traders pay attention to is the execution of stop loss and take profit. In the financial market, especially in the foreign exchange market, liquidity is generally abundant, and pending orders at any price can be accurately executed. The announcement of major news events, the outbreak of black swan events and special time periods (opening on Monday) will also lead to insufficient liquidity. The impact of insufficient liquidity on individual traders is that the pre-set stop-loss price cannot be closed in time, and there will be sliding trading.
For example, investor A puts a bearish euro at 1. 1200, and the stop loss is set at 1. 1220. When the market deviates from the expected trend by more than 20 basis points, he will close his position and leave. The actual stop-loss price is 1. 1230, which deviates from the preset stop-loss price 10 basis point. Compared with the stop loss of 20 basis points, the loss increased by 50% to 30 basis points. This is the damage caused to investors by the slip-point trading at the stop-loss price.
Of course, this phenomenon will not happen often, but it will happen when the market fluctuates greatly, emergencies and major news data are released. In order to avoid unnecessary losses, trading experts can usually choose special stop-loss methods provided by brokers: for example, IG Group provides traders with the function of "guaranteed stop-loss", and investors only need to pay a small amount of extra fees to ensure that the stop-loss will be closed at a preset price.