Dont pick an arbitrary place to put your stop loss. Position your stop loss in relation to the market activity. Many traders incorrectly choose a stop so their loss is the same amount each time they are stopped out.
You are completely disregarding the meaningful market support and resistance levels where the stops should be placed if you use an arbitrary place for your stops. You need to place the stops in accordance with the market conditions.
Is there any rule that can tell you where to put your initial stop loss? Where to place your initial stop loss? Try to set your initial stop 3% below the support level. The important thing in this method is to correctly identify the support area. Test this method and see if it works for you.
Support and resistance is a concept that every trader should understand. Knowing correct support and resistance is very important for a trader. This you will learn with experience. For example, suppose you have a trading system that can determine an entry point. However, your trading system does not provide an exit based on the market dynamics. First you need to identify the support area. Set your stop loss 3% below the support area.
The formula that you will use is (Support Price)*0.97(3% less) = Initial Stop Loss. For example, suppose that the support level in a bullish trend is $30. You should set the stop loss at 3% below the support level in a bullish trend if you have an area of support at $30. The formula that you will use is $30 (support price)*0.97 (3 percent less) = $29.1 (Initial Stop Loss Level).
Do not use arbitrary stops based on flat dollar amounts that you are willing to lose. For example to say that you are willing to lose $200 in a trade is to disregard the current market conditions.
Another approach can be to set your stop loss one tick below the support in a bullish trend or one tick above the support in a bearish trend. If you do not use stops at all, you are inviting failure.
For example in trading stocks, you are in trouble if you do not use stops and hang on to a losing trade to the point that you emotionally feel that the loss is so large that you cannot exit the trade.
Some professional traders use mental stops only. In the currency market it is better not to put the stop actually in the market when you have the position on. Your broker will see your stop and if there are enough similar stops, the broker may try and hit your stop. This way the broker makes money and you do not.
You can set a mental stop and get out quickly if you are hit in such a market like the currency market. But this will need psychological toughness and discipline to get out when you are supposed to get out.
Never move your stop for emotional reasons especially when it is your initial stop. As new trailing stops are determined, you can move your stops to lock in profits. In case you add on to your winning trade by increasing your trade size, you must adjust your stops to keep your risk in relation to your trade size.
When adjusting your stop due to an increase in trade size, always move the stop closer to the current position to lower the risk in relation to your larger trade size.
Mr. Ahmad Hassam has done Masters from Harvard University. Try This 1500 Pips A Day Forex Signal Service from heaven! Learn These Candlestick Patterns!
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