Cover On Approach

The Cover On Approach strategy is a risk management technique used in forex trading. It involves placing a stop loss order at a predetermined level after opening a position to limit potential losses and protect profits.

Here’s how the Cover On Approach strategy works:

1. Identify the entry point: Determine the price level at which you want to enter a trade based on your analysis and trading strategy.

2. Set the stop loss order: Once you open a position, place a stop loss order at a specific price level. The stop loss order is designed to automatically close the position if the price reaches that level, preventing further losses.

3. Adjust the stop loss order: As the trade progresses and if the price moves in your favor, you can adjust the stop loss order to lock in profits and protect against potential reversals. This is known as “trailing” the stop loss.

4. Monitor the trade: Continuously monitor the trade and adjust the stop loss order accordingly. If the price moves in your favor, you can move the stop loss order closer to the entry point or to a level that ensures a minimum profit.

The purpose of the Cover On Approach strategy is to limit potential losses and protect profits by using stop loss orders effectively. It helps traders maintain discipline and manage risk in their trading activities.

It’s important to note that the placement of the stop loss order requires careful consideration. Setting it too close to the entry point may result in premature stop-outs due to normal market volatility, while setting it too far may expose the trade to excessive risk.

The Cover On Approach strategy is just one of many risk management techniques used in forex trading. Traders should customize their approach based on their risk tolerance, trading style, and market conditions. It’s also recommended to backtest and practice the strategy on a demo account before implementing it with real money.