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Where to Set Stop Loss When Trading

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Old 21-08-2015, 21:39
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Default Where to Set Stop Loss When Trading

There is no reason not to set a stop loss when trading. While we form expectations and make trading decisions based on what we believe will happen using our tested method, the fact is at any moment price can do anything. Not having a stop in place leaves the trader susceptible to a very large loss. Stop losses control risk, but need to be placed at a price that still allows the market to move toward the target. Once set, a stop loss can also be managed as the trade progresses.

Stops Losses

The stop loss is an order placed at the same time a trade is opened, to control the maximum loss of that trade.

Typically a stop is an offsetting market order, which when triggered will close out the position at any price available. This can result in slippage, meaning the lossĖeven with a stop loss orderĖcan be larger than anticipated. While this is a drawback, I have found that typically I would have taken an even larger loss had my stop loss not been there. Overall, slippage hasnít been an issue over the last decade I have traded.

Therefore, it is very important to place a stop loss so you have a good idea how much a trade could cost you. While no one wants to take a trade thinking they will lose, losses are a constant in trading, and losses must be kept in check in order to succeed.


Setting a stop loss also allows you to determine your position size. If you donít set a stop loss itís very hard to choose a position size that is in accordance with the account size.

I choose not to risk more than 1% of my capital on a single trade. Even following these guidelines it is possible to make a substantial amount of money (see: How Much Money Can I Make as a Day Trader). Risking up to 2% per trade is acceptable, but 1% or less is recommended.

Stop Losses and Position Size

Letís say you have a $10,000 trading account. If you risk 1% that means you can risk $100 on a trade. Without a stop loss ď$100″ means nothingĖyou need to define your stop loss and then calculate your position size in order to define how that $100 will be risked.

Letís say you decided to buy 100 shares of stock at $50 and place a stop loss at $49 (risking $1 per share). If the stop loss is hit then you have lost $100. Therefore, the ideal position for your stop and risk management protocol is 100 shares. But in order to figure that out you had to set the stop loss (also see: Position Sizing Strategy for Forex Trading)

This example greatly simplifies things though. A stop loss should not be placed at an arbitrary level. It should be at price level, that if hit, will show you were wrong about the trade (at least for now).

Where to Set Stop Loss When Trading

I follow two general stop loss strategies based on two different types of strategies.

If I spot a trade I like, based on a chart pattern, or one of the strategies covered in my forex strategy guide I will place the stop loss at the price closest to my entry price, but that wonít get hit if my analysis is correct. The video below provides more details on this.

Another stop loss strategy I employ is the fixed stop. For example, I use a day trading EURUSD strategy and find that if I take an entry with a certain indicator, then I can employ a 3.5 pip stop. If the price stops me out at 3.5 pips, chances are it is going to run even further past me, so 3.5 pips is an optimal stop for this particular strategy. It allows the price enough room to wiggle a bit and begin to move toward my target, but also saves me from losing more money that I have to on losing trades.

To use a fixed stop youíll need to have a tested strategy that is calibrated for that particular stop loss.



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Old 27-08-2015, 15:04
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Default Re: Where to Set Stop Loss When Trading

I never using stop loss in my trade in any broker such as in Mayzus, Liteforex, fxpro, and insta. Because I always monitor and control it, so if there will happen something worse, i can direct interrupt the trade
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Old 06-09-2015, 10:45
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Default Re: Where to Set Stop Loss When Trading

Quote:
Originally Posted by samuelp80 View Post
I never using stop loss in my trade in any broker such as in Mayzus, Liteforex, fxpro, and insta. Because I always monitor and control it, so if there will happen something worse, i can direct interrupt the trade
You are quite a risky trader, in my opinion. I always use stop loss oreders, just because the price sometimes jumps unpredictably and I can lose more than I can afford to.
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Old 10-09-2015, 15:17
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Default Re: Where to Set Stop Loss When Trading

You are choosing Liteforex sir?? its good choice sir, those broker very solid and wealthy.
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Old 11-09-2015, 07:22
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Default Re: Where to Set Stop Loss When Trading

Stop loss should be placed in a position that gets triggered only when the direction you have chosen is absolutely wrong. For example the price is going up. You wait for a reversal signal. The price changes its direction and starts going down and you take a short position. Now I am using TICKMILL
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Old 24-09-2015, 17:46
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Default Re: Where to Set Stop Loss When Trading

Quote:
Originally Posted by samuelp80 View Post
I never using stop loss in my trade in any broker such as in Mayzus, Liteforex, fxpro, and insta. Because I always monitor and control it, so if there will happen something worse, i can direct interrupt the trade
I usually set stop loss 40 pips away from entry and take profit at 80 pips (double from SL). Profit ratio is around 73 means that from 100 trades 60 of my trades are profitable and rest are losing. Never lose more than 30 bucks per trade on my Hotforex account, with 3K equity it means 1% risk exposure only which I consider pretty safe.
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Old 30-09-2015, 07:11
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Default Re: Where to Set Stop Loss When Trading

Sounds a good strategy but you should combine TA in setting TP and SL, resistance and support levels are really helpful.
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