Standard Stop Loss

Stop Loss have to be divided into two types, same as Take Profit. The first type is automatic, the second is manual. The main function of Stop Loss is to minimize losses when the price rushes in direction that is opposite to the desirable.

Let's first look at the automatic Stop Loss. It is activated as follows: an order is opened and value of Stop Loss is being set as an absolute value lower than opening price. In case if the Stop Loss level is reached, the order is closed automatically.

Let us look at an example.

Ask price=1.4040, Bid=1.4038. We open a BUY order. Opening price is 1.4040. Let's set Stop Loss=1.4020. Price ticks down and passes the level Bid=1.4020. The order is closed automatically. The loss is 20 pips.

The similar situation for SELL order

Ask price=1.4040, Bid=1.4038. We open a BUY order. Opening price is 1.4038. Let's set Stop Loss=1.4063. Price goes upward and passes the level Ask=1.4063. The order is closed automatically. The loss is 20 pips.

One of the features of Stop Loss is that it cannot be set too close to the order opening price. Minimal distance can be different and is being set according to configurations of the broker server. Value is counted from the opening price. I.e. from the Ask price for BUY orders and from the Bid price for SELL orders.
During the time when the order is open, we are able to change the Stop Loss value. Herein, rules for distance of a new Stop Loss value are exactly the same as during the order opening. The only difference will be that current price value has to be used but not the order opening price.

For convenience, the traders use relative values of Stop Loss in the pips, e.g., for the value of SL=25 at current price of Bid=1.4038 and Ask=1.4040, absolute value of Stop Loss for BUY order will be 1.4015, and for SELL order under the same conditions it will be 1.4063. I.e., Ask price is taken as a basis for the BUY order and Bid price is taken for the SELL order. In this manner, when closing an order on Stop Loss event we will receive precisely 25 pips of loss.

Manual Stop Loss.

Manual method of order closing differs from the automatic one in the way that in case of reaching Stop Loss level, the order is not closed automatically, and it has to be closed manually. Such method is not very effective because additional efforts are required, but there are cases when it is reasonable to use particularly manual closing. E.g., when we need to use a function of partial closure of an order under different levels of loss for one and the same order.

Let's take a look at an example. We open an order with 3 lots volume. And we will close one lot at a different level of loss. SL1=10, SL2=20, SL3=30. When reaching SL1 and SL2, parts of the order will be closed manually and closing of the part at the SL3 level will be done automatically.

In this manner, with the Bid price =1.4038, Ask=1.4040, the parameters:

For BUY order will be as follows: open price=1.4040, manual Stop Loss SL1=1.4030, manual Stop Loss=SL2=1.4020, standard Stop Loss=SL3=1.4010.

For SELL: open price=1.4008, manual Stop Loss SL1=1.4018, manual Stop Loss=SL2=1.4028, standard Stop Loss=SL3=1.4038.

Manual method of order closing as per the Stop Loss level has one disadvantage minimum. If a technical deficiency suddenly occurs on the trader side, then it would be impossible to close the order timely at least. In automatic method, order will close in any case regardless of technical state of the metatrader terminal. Thus, trader is responsible for manual order closing, and broker is responsible for the automatic closing. These peculiarities have to be obligatory taken into account when choosing parameters for the order being opened.