The chances of profit and gain are equal in Forex Trading, be it for a retail home trader or any large trader. But every trader takes steps for preventing these losses. Some of them use a hard stop method while others prefer soft or mental stop. The results differ based on their trading styles. While many traders prefer using a hard stop rule, let’s find out here whether the soft or mental stop is applicable in gaining profit or not.
What Is The Mental or Soft Stop?
The soft stop is considered a stop which is not based on a fixed price value. The trader is free to exit on any value which is on his/her mind. It is also referred to as an order which was not in place when the trader decided to exit with no one to control your loss.
To understand this phenomenon, let’s take an example here.
A trader bought a stock at $45.15 and chose a mental stock at price $44.90. A mental stop order is not placed at this rate. Now, if the price moved to $44.90, the trader may execute an order to sell for exiting the trade. Because the Forex market conditions are changing continuously throughout the day, it’s up to the trader to choose whether to exit the market at $44.90 (either higher or lower). This exit is dependent on the current situation of the market at that moment instead of perceiving any earlier situation.
Who Must Use The Metal Stop?
In case of a mental stop, a trader is required to see if losses are increasing near the stop area. That’s why the stop order is preferable for short term traders. This is helpful because there are certain short-term factors which are likely to materialize in a day.
What Advantages Does Mental Stop Offer?
The fact that the stop is not fixed has many advantages. It is easier for retail home traders to deal with the losses quickly if they perceive that there is a possibility for a huge pullback. They wouldn’t want to hold the position in this case or they may easily move the position by keeping a close check on what is happening in the market.
Another advantage of soft stop is the feasibility of adjusting with respect to the ongoing market trends, also showing the trader’s promising response, despite of unfavourable circumstances. If a trader is well-experienced and trained, chances are he may make multiple trades in a day. So for these traders, the option of soft stop is more beneficial.
ETX Capital recommends that retail home traders may use this stop as they trade quickly and need profit instantly. But, before making the choice, it is also mandatory to make sure whether this stop follows your trading style or not as well as the upcoming events that could impact your trade. In this way, you’ll be able to have a safe exit without missing any chances of profit gain.