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How I Set My Stop Loss Like A Pro

How I

Set My


Like A Pro

When Trading

Learn how to set a robust stop-loss like a professional

when day or swing trading in the financial markets.

A stop-loss is a market order to close a trading position as soon as the financial instrument reaches a specific (designated) price level.

A 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 losses.
Though, stops are not completely hidden, one can partially conceal them by setting them gradually.

For 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.

Note 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

Setting stop losses is a matter of preference or risk acceptance. It varies from one trader to another.
However, there are common rules.

1/ Always set the stop-loss few pips above or below a key support or resistance level.
2/ Set the stop-loss few pips above or below first buyers and sellers' stop loss.
3/ Set stop loss according to the characteristics of the financial instruments.
4/ Set the stop loss in accordance with the risk reward ratio of the trade.
5/ Set the stop-loss in accordance with the probability of the trade.
6/ Set the stop-loss in accordance with the type of trade one is taking.
7/ Set the stop-loss on the signal time frame especially if one is swing or position trading.

Sometimes, day traders can set their stop-loss on the entry time frame though that is not

the best practice.

Moving Stop-loss

The 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.

One 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.

For scalpers, it is almost dangerous to move stop-loss if one is scalping. In fact a scalper should never move the stops.

A scalper who moves stops is not serious. That is it.
Day, 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.
In 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).

Emotion And Stop-Loss

There 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 all 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 thought.
That feeling is unforgettable to all technical traders whether one is new or more advanced trader.
Many times, traders also do 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.
The fear of losing, pain of past losses, and the pressure of the trade can push one's adrenalin to the
highest level.
The best way to handle that emotion is to accept that every trade always has few elements of risk. Also, one must accept that losing trades will always occur even if one has done everything right. A simple way to control 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.
That strategy will keep one as disciplined as a military personal, and help one to avoid blowing the trading account in case all trades turn negative.

The subject of stop-loss divides the financial markets into three groups.
First there are those who think that trading is all about being really lucky, having best chances, and mastering gambling. For that group, they do not see why one should bother about setting an appropriate stop-loss or protect trading positions.

The 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 positions.

The 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 first priority.
Furthermore, they also put defensive measures in place to protect their positions.


If 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 that instance, their risk is the expiration

of the options; and the premium that they have paid. Those options or position traders usually use hedging strategies

to defend their positions. 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.

Indeed, 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.

Always use a stop loss, and do not forget to use one. The ultimate goal is 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 can control or stop the loss.