Protecting your money and your sanity using stop losses on MetaTrader 4


Hi, it’s Brian again. Today I’m going to show you perhaps the
most important thing you need to know about margin trading using MetaTrader 4 on any markets
– cryptocurrency or forex or anything: How to protect your money using stop losses. Nobody wins even close to 100% of the time
and mitigating your losses can be one of the most important skills in currency trading. If you only watch one of my videos all the
way through, please make it this one. Stop losses will automatically close a trade
for you if that trade goes too far in the negative. Without adding a stop loss to your trade,
you run the risk of it going the opposite direction you want until you hit your margin
limit and lose a bunch of money. With that being said, setting a stop loss
too close to your entry point will make you unable to make much money as all markets naturally
fluctuate and exiting a trade too early can make you lose a lot of money in the long run,
as well. First, I’ll show you how to set and change
stop loss values in MetaTrader 4, then I’ll go over some real-world examples so you get
an idea of what kinds of values you should use for your stop losses. The easiest way to set a stop loss is when
you initially open a new order. Click on “New Order” in MetaTrader 4. Here you’ll see the “Stop Loss” field. If you’re buying (expecting the value of
the currency pair to increase), you want to set the value of the stop loss below the current
value of the currency pair. If you’re selling (expecting the value of
the currency pair to decrease), you want to set the value of the stop loss above the current
value of the currency pair. With a stop loss set on an order, you’ll
see two lines across the MetaTrader chart. Here is an order I placed earlier on the BTCUSD
currency pair. I shorted the pair, so my stop loss is above
the entry point. My entry point is represented by the green
line and my stop loss is represented by the red line. If the value of the currency pair rises to
the red line, my order will be closed as soon as possible. I will lose money on that trade, but not as
much as if there wasn’t a stop loss there and the value continued to rise. I can change the value of this stop loss at
any time by simply clicking and dragging the red line. The first time you do this, you’ll get a
modal window that pops up and asks you to accept the terms of changing an order live. You only have to do this once, then you’ll
never see it again. Let’s look at a real world scenario where
a stop loss would have been helpful on this chart. You’ll see here that a sell order would
have done very well along this dip in value. Once it got to here, though, the value reversed
and if you didn’t close your order at it’s peak, you would have lost a lot of your gains. The stop loss would have still been somewhere
up here, so it wouldn’t have helped much. You could have manually moved the stop loss
down over the course of these couple days, OR you could have used something called a
“Trailing Stop”. If you right click on the green line (once
again, the green line represents your entry point on the order), you have the option to
set a trailing stop. You set a certain number of pips, which you
can see by selecting the crosshair and dragging anywhere on the chart. You’ll see my stop loss here is
about 40,000 pips and I actually having a moving stop set to the same value. What this does is as the value of the currency
pair changes, the stop loss automatically moves with it. With a moving stop set to 40,000 pips, your
stop loss will stay 40,000 behind the highest profit value your order has yet achieved. It will only move in the profit direction
(in this case down since it’s a short sell) never in the other direction. A trailing stop will only starting moving
after you’ve gone the 40,000 pips after the entry point, so in this trade, the red
line will only start moving once the value dips to about here and then it will jump to
the entry point. That means that no matter what, you’ve broke
even on this trade. In this example, you would have seen the stop
loss automatically go down as the value dropped, then it would have stayed
put here, then it would have kept going here, stayed put again, dropped one last time, and
you would have been stopped out then at some point early in the rise here. You can see on this example also why you would
want to give your stop loss some room for normal fluctuation in the market. The overall direction of this chart is down,
but there are areas where the value rose for a little bit, then fell again. If your stop loss is too small, you would
have been stopped out (your order would have been closed) here, and you would have missed
out on all this future activity. There is no one value everyone agrees on about
what you should set your stop loss to, it just depends how that fits in in your overall
trading strategy. At the end of the day, even with the best
trading strategy, there will be times when your stop loss is too small and you miss out
on these big gains, and there will be times when your stop loss is too big and you lose
a lot of the gains you already made. In the future, we will be going over specific
strategies, but they all fail sometimes and you need to be prepared psychologically to
deal with that, shrug it off, and move on to the next trade. Two good books for dealing with the psychological
aspects of trading are Trading in the Zone by Mark Douglas and What I Learned Losing
a Million Dollars by Brendan Moynihan. I highly recommend picking up both of those
and giving them a good read. Neither are very long and you could probably
knock out both in a weekend. I’ve put links to them in the description
of this video. One last note on stop losses:
If you enter a stop loss on the New Order screen of MetaTrader, that value is attached
to the order itself as held in the exchange (in this case btc-e.com or in forex trading
the exchange would be forex.com or another similar exchange). Trailing stop values are managed by the MetaTrader
4 software itself. What that means is that your trailing stop
will only be updated if MetaTrader is open and up and running on
your computer and connected to the internet. If your battery dies or something like that,
the latest value of the stop loss will be stored in the exchange and your trade will
be exited if that value is reached, but your trailing stop will discontinue moving. I never place a trade without also setting
a stop loss, and I recommend you do the same not only to protect your money but to protect
your sanity. This kind of trading can be fairly intense
psychologically and I recommend playing around with stop losses on your demo account on a
few trades to see what works for you. As always, let me know in the comments if
you have any questions or anything to add. Have a great day.

4 thoughts on “Protecting your money and your sanity using stop losses on MetaTrader 4”

  1. Off-topic sorta, I guess. But do you have any clue how to place a stop on poloniex? Their "stop-limit" system seems to be some sort of sad joke (or worse: a devious method by which they steal the cash of idiots.)

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