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Resistance based Stop-Loss

A stop-loss order is a simple way to exit a position if it reaches a point where we are unwilling to sustain further losses. It is easy and well suited for beginners of forex.

Suppose a trader purchases the EUR/USD at 1.3000 and places a stop-loss at 1.2950. Therefore, the trader is willing to risk 50 pips (1.3000-1.2950). The stop-loss must be set up at the time of trade, and calculated before hand.

The stop-loss order may be placed based on recent support or resistance levels. For instance in Figure 1, if a trader decided to short the EUR/USD based on it breaking lower out of the range it was in (red down arrow), a stop-loss could have been placed just above the resistance level at 1.4590 (yellow line).