Beginner Level

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Lesson 15: MT4: Stop Loss, Take Profit, and Trailing Stop

As we’ve already demonstrated in our Basic
Terms and vocabulary tutorial, proactive risk management is one of the keys to
long-term success in financial markets. That’s why stop losses and take profits
should be an integral part of your trading.

So let’s look at how to use them on our MT4
platform to ensure that you know how to minimize your risk and optimize your
trading potential.

Setting
Stop Loss or Take Profit

The first and simplest way to add Stop Loss
and Take Profit to your company is to do it right away when you place new
orders. 

Simply enter your specific price point in
the Stop Loss or Take Profit fields. Note that Stop Loss will be executed
automatically when the market moves against your position (hence the name: Stop
Loss) and Take Profit Levels will be executed automatically when the price reaches
your defined profit target. So you can set your Stop Loss level below the current market price and set
the Take Profit level above the
current market price.         

It is important to remember that Stop Loss
(SL) or Take Profit (TP) is always connected to an open position or to a
pending order. You can adjust both once your trade has been opened and you are
monitoring the market. This is a protective measure for your market position,
but they are not necessary to open a new position. You can always add them
later, but we highly recommend that you always use these to protect your
positions. 

Adding
Stop Loss and Take Profit Levels

The best way to add SL/TP levels to your
already opened position is by using a trade line on the graph. Drag and drop
the trade line up or down to a specific level.

Once you have reached the SL/TP levels, the
SL/TP line will appear on the chart. You can also change the SL/TP levels
easily and quickly this way.

You can also do this from the bottom of the
‘Terminal’ section. To add or change SL/TP levels, simply right-click on your
open position or order and select ‘Modify or delete order.’

The order modification window will appear
and you can now enter or modify SL/TP at the same market level or by specifying
the range of points from the current market price.  

Trailing
Stop

Stop Losses are designed to reduce losses
when the market moves against your position, but it can help you lock in your profits
as well.

Let’s assume you’ve opened up a long position
and the market is moving in the right direction, making your trade profitable.
Your original Stop Loss, which was put below your open price, can now be
transferred to your open price (so you can break even) or above the open price
(so a profit is guaranteed).

You can use the Trailing Stop to make this
process automatic. This is a very useful tool for your risk management,
particularly if price changes are rapid or you are unable to keep a constant
eye on the market. As soon as the position becomes profitable, your Trailing
Stop will automatically follow the price, maintaining the price difference
previously established.

Note that your trade needs to make a profit
large enough for the Trailing Stop to move above your open price before your
profit can be guaranteed.

Trailing Stops (TS) are connected to your
opened positions, but it is important to remember that if you have a trailing
stop on MT4, you need to have the
platform open so that it can be successfully executed. Meaning, you cannot log
out or close the MT4 application.

To set a trailing stop, right-click the
open position in the ‘Terminal’ window and specify the desired pip value of the
distance between the TP level and the current price in the Trailing Stop menu.

Once you’ve done this, your Trailing Stop
is now activated.

You can disable your Trailing Stop by selecting
‘None’ in the trailing stop menu. If you want to deactivate it in all the
positions you have opened, just click ‘Delete All’.

As you can see, MT4 gives you a lot of ways
to protect your positions with just a few clicks.

*Even though SL are
one of the best ways to ensure your risk is managed and potential losses are
kept to acceptable levels, they do not provide 100% security.

SL are free to
use and they protect your account against adverse market moves, but please be
aware that they cannot guarantee your position every time. If the market
becomes suddenly volatile and jumps beyond your stop level (i.e. jumps from one
price to the next without trading at the levels in between), it’s possible your
position could be closed at a worse level than requested. This is known as
price slippage.

Guaranteed stop
losses, which have no risk of slippage and ensure if a market does move against
you, the position is closed out at the stop loss level you requested, are
available for free with a basic account.