Your stop loss order is actually as important or more important, than your entry level yet, most traders fail learn how to place Forex stop losses order correctly. They fail to understand that – There are many different ways to make money with a Forex trading strategy but one sure fire way to lose it is to have poor money management. Let's look at Forex stop orders in more detail.

First let's look at some common errors traders make in terms of placing stops and then how to place stop orders correctly to protect your equity and at the same time, improve your overall profitability.

Common Errors in Terms of Placing Forex Stop Orders

Firstly, most traders never have their stop in place when they enter their trading signal! They simply wait and want to see how things go or have a mental stop loss. This normally leads them to end up running a losing trade and hoping it turns around. They run up a loss, refuse to exit but are then forced out as the loss becomes to big. These traders could have taken a small loss but they let their emotions dictate their trading signal and this always leads to disaster.

Another group of Forex traders, believe the rubbish online that you can trade with 5, 10 or 20 pip stops. Well the reality of a stop loss order in Forex which is this close - is that its within random volatility and sees the trader get stopped out. The myth of tight stops is put around by Forex trading system vendors, selling scalping or day trading systems with tight stops don't work.

Another error is to put a stop right above or right below a level of currency chart support or resistance. So its 1 – or 2 pips behind but this is a strategy which normally leads to losses because the market will very often trade up to test resistance or down to test support and then go above or below the level. When this happens, the market action takes out stop clusters and then, goes the way the trader thought - but he's not in the trade, he's been clipped out!

Finally, another key mistake is not to adjust stop losses as a trade develops. Market action in currency markets is constantly changing and you should adjust your stops daily, in light of the action. Also if the background to the trade has changed, don't hang around simply exit the market and keep your loss small.

Tips for Better Stop Loss Order Placement in Forex

Accept the fact that you are only going to make profits on 30 – 50% of your Forex trading signals like most successful traders do and work out a stop loss strategy which will keep the stop outside the market noise - but still give you protection.

In Forex markets the best traders tend to trade with stops of a 50 – 100 pips or more. You may say that's to much risk but its not. If you think it is – you are to highly leveraged or you are only looking for small profits.

In terms of Forex trading strategies that work – stops can be 50 – 100 pips but on the other hand if profit potential is several hundred pips per trade, not only can you cover your losses you can make huge long term gains.

The best Forex traders also, monitor stops all the time and are not afraid to exit the market, if the trading conditions change.

They also don't place stops where other traders do, like right on a level of support or resistance or within a few pips of it, they give the market room to breathe.

A great trader once said to me, that his Forex trading strategy was based upon having a stop which gave him protection but he always made sure it was outside the market noise and always behind the losing herds stops and this guy made a lot of money.

Final Words on Forex Money Management Stop Loss Orders

As you can see placing Forex stop orders is just as important as, your entry order into the market. In fact, I would argue its actually more important. You need to balance risk to reward, be prepared to place stops outside the market noise but close enough to give you protection, avoid putting stops where the losing herd have them be flexible and change your stop loss quickly in light of the unfolding market action.

The fact is most traders pay little attention to money management and Forex stop loss strategies and that's why they lose. If you take some time and develop a strategy, to protect what you have and keep losses small, you will find the profits will come and you will make a lot of money.

Just like the great football teams, you work from a solid defence and that means sound money management and if you do this the profits will come.

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