Understanding and applying stop loss

More Stop Loss Strategies

Harvesting Stops and multiple stops. Among forex traders there is a belief -- rarely matching reality -- that if you set a stop, your market maker may manipulate the market in order to "harvest" your stop and claim the profit from your loss.
In order to protect against this, some traders put in multiple stops -- some closer to the current trade price than others, so there is no single currency value that will harvest your entire trade. Realistically, however, few traders -- probably almost no individual traders -- make trades large enough to make such a move worthwhile even if your market maker had no qualms about engaging in the practice. Keep in mind that this is a business with a $4 trillion daily trading volume. For other reasons, however, it can be a good idea to set multiple stops. A sudden but limited move away from your trade position may take out your first stop or even your second, but if the market then reverses, some portion of your trade will still be active.

Stop and reverse. The stop and reverse stop loss strategy includes a stop at a certain loss point and simultaneously enters a new trade with a stop in the opposite direction. Using this strategy requires more market savvy than beginning traders can be expected to possess. Also, not all brokers accept this particular trade as a single order. In those cases, once the first stop is executed, you will need to execute a new order (one that is "the reverse" of the original order) and enter the new stop in this new direction.

Trailing Stops. This strategy addresses the trading maxim, 'Let Your Profits Run, and Cut Your Losses Short.' One way of achieving this -- or at the least a good way of making this more achievable os the trailing stop.  As the name suggests, a trailing stop trails behind the market price by a fixed amount. If your trade is moving into profit, the trailing stop moves upward with the rising market price. In this way, the percentage of loss you are willing to tolerate remains about the same as the market moves in your favor. If the market eventually moves against you, the trailing stop, having moved upward as you profited, protects you from a market move that wipes out the profit.