is a market
order to close a trading position as soon as
the financial instrument reaches a specific (designated)
stop loss is not hidden in a black box, but visible to other market
participants who may know exactly where the stops are in the
financial markets. Therefore, it is one's responsibility to choose
the most suitable stop-loss that can protect against larger
stops are not completely hidden, one can partially conceal them by
setting them gradually.
instance, if a trader intends to use thirty pips stop-loss, but does
not want to disclose his intent straight away he can initially set
the stop-loss at twenty pips. By doing so, other market participants
may think that he is using only twenty pips stop-loss. However, he is
free to move it to thirty pips in one go. Or, he can change it twice.
In that instance, he may change it into twenty-five pips before
moving it one last time to thirty pips.
that it is often the desire of many market participants to take out
others' stop-losses, and use them as the fuel for their own trades.
They delight in taking others out of their trades. Generally, one
ought to protect trading positions especially if one is risking
substantial amount of money.
How To Set A Stop-loss
stop losses is a matter of preference or risk acceptance. It varies
from one trader to another.
there are common rules.
Always set the stop-loss few pips above or below a key support or
Set the stop-loss few pips above or below first buyers and sellers'
Set stop loss according to the characteristics of the financial
Set the stop loss in accordance with the risk reward ratio of the
Set the stop-loss in accordance with the probability of the trade.
Set the stop-loss in accordance with the type of trade one is
Set the stop-loss on the signal time frame especially if one is swing
or position trading.
day traders can set their stop-loss on the entry time frame though
that is not
General rule is never move your stop-loss. It makes sense because if
one is moving the stops, one is also increasing the risk exposure.
Usually those who move their stop-losses are traders who do not want
to cut losses or minimize the risk. In many cases, they end up wiping
their trading accounts
when a small loss grows
to become a colossal loss.
may experiment a bit, and try to determine the most appropriate
stop-loss for each financial instrument one is trading. If for
instance, one ascertains that one should fifteen pips for day trading
X-stock, one can stick to that. Also, one does not need to move that
stop in many cases.
scalpers, it is almost dangerous to move stop-loss if one is
scalping. In fact a scalper should never move the stops.
scalper who moves stops is not serious. That is it.
swing and position traders do
strategically move their stops when they do not want to reveal their
maximum stop-loss to the market straight away.
fact the only time, one should move stops is when one has a strategic
reason to do so; instead of the fear of taking a losing trade. In
truth, traders with more experience will succeed in moving their
stop-loss without being cooked (so to speak).
is so much emotion attached to the application of the stop-loss.
Remember, the last time when the price came many times quite close to
the stop-loss. Initially,
one thought it is
well, but it finally hit the stop before heading in the direction one
was expecting it. Ouch. The
price hits the stop-loss then moves up or down as one initially
feeling is unforgettable to all technical
whether one is new or more advanced trader.
times, traders also
use useless stop-loss because they can not afford a better one. In
this instance, the emotion is unbearable as one is crossing fingers
in a desperate hope that the price will just go straight away in the
direction one is expecting it without any fluctuations.
fear of losing, pain of past losses, and the pressure of the trade
can push one's adrenalin to the
best way to handle that emotion is to accept that every trade always
elements of risk. Also, one must accept that losing trades will
always occur even if one has done everything right. A simple way to
the madness of stop-losses is to never use more than 5% of the
trading account. So one opens ten trades or hundred trades, those
trades should never exceed the five percent at any time.
strategy will keep one as
a military personal, and
help one to avoid
trading account in case all trades turn negative.
subject of stop-loss divides the financial markets into three
who think that trading is
For that group, they do not see why one should bother about setting
an appropriate stop-loss or protect trading positions.
second group is for those who are smart risk takers. Though, they do
move their stop-losses,
they understand the risk, and take other measure to hedge their
third group is for those who hate to lose, but take maximum
precaution to handle the risk. They very disciplined and risk averse.
They will not move their stop-loss, and the risk control is their
they also put
measures in place to protect their positions.
one is an active day or swing trader or scalper, one ought to use a
reasonable, but suitable stop-loss to manage the risk. Generally,
position traders use call or put options to hold their positions. In
instance, their risk is the expiration
the options; and the premium that they have paid. Those options or
position traders usually use hedging strategies
They also put in place defensive measures to defend and protect
colossal positions. Other market participants use binary betting
instead of the normal spread betting to reduce their risks. Whether,
one is a normal technical day, swing, scalping trader or position
trader, one will take appropriate measures to manage the risk.
the number one goal of all those exercises is to stop losses. After
all, financial market participants who do something about stopping,
reducing or managing losses will survive the ups and downs
of this moody financial market.
use a stop loss, and do not forget to use one. The ultimate
not to lose, therefore,
one can only do that if one can control the losses or risks. Never
trade any financial instrument if there no way one
control or stop the loss.