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In forex trading, there are a lot of terminology regarding the opening and closing of trades that can cause novice traders confusion. This article will explain some basic terms that are used often by traders of all levels. If you would like more information on the types of forex products available locally and ways you can trade, you can see it here.

What is a strike rate?

In forex trading, a strike rate is the percentage of successful trades. The higher the strike rate, the more profitable the trader will be. The strike rate can be affected by some factors.

The most important factor is experience, and an experienced trader is more likely to have a high strike rate than a novice trader. Another critical factor is the type of trading system used. A well-designed trading system will have a higher strike rate than a poorly designed system.

Another factor affecting a trader’s strike rate is the risk management strategy. A good risk management strategy will limit the losses incurred on losing trades and allow profits to run on winning trades. It will increase the overall profitability of the system and the strike rate.

Finally, the trader’s emotional state can also affect the strike rate. A stressed or emotional trader will make more mistakes and have a lower strike rate than a calm and collected trader.

What is a stop loss?

A stop loss is an order to sell a security below its current market price, and it is usually done to limit losses when the market price falls. Stop losses are typically used by short-term traders and investors.

How to set a stop loss

There is no perfect way to set a stop loss, and the most important thing is to make sure that the stop loss is placed at a level where the trade can be closed without incurring too much of a loss.

Many traders use a percentage of the account balance as a guide for setting the stop loss. For example, if the account balance is £10,000, the trader may place a stop loss at £9,500 (5% below the current market price).

Another standard method is to use recent highs and lows as a guide for setting the stop loss. For example, if the market price has recently fallen from £1.05 to £1 .02, the trader may place a stop loss at £1.03 (just below the recent low). Once the stop loss is set, it is vital to stick to it. Many traders are tempted to move the stop loss to breakeven when the trade starts to go in their favour.

What is a take profit?

A take profit is an order to sell security above its current market price, and it is usually done to lock in profits when the market price rises. Take profits are typically used by short-term traders and investors.

How to set a take profit

Many traders use a percentage of the account balance as a guide for setting the take profit. For example, if the account balance is £10,000, the trader may place a take profit at £10,500 (5% above the current market price).

Another standard method is to use recent highs and lows as a guide for setting the take profit. For example, if the market price has recently risen from £1.02 to £1 .05, the trader may profit £1.04 (just below the recent high).

Once the take profit is set, it is vital to stick to it. Many traders are tempted to move the take profit to a higher level when the trade starts to go in their favour.

What is a trailing stop?

A trailing stop is an order to sell security below its current market price. It is usually done to limit losses when the market price falls. Unlike a regular stop loss, a trailing stop will automatically decrease as the market price falls. It allows the trader to lock in profits on a winning trade while still protecting against a loss.

How to set a trailing stop

There is no perfect way to set a trailing stop, and the most important thing is to ensure that the trailing stop is placed at a level where the trade can be closed without incurring too much loss.

Many traders use a percentage of the account balance as a guide for setting the trailing stop. For example, if the account balance is £10,000, the trader may place a trailing stop at £9,500 (5% below the current market price). Another standard method is to use recent highs and lows as a guide for setting the trailing stop.