Last week I was reviewing a website which has a trading signal
program for those investors who prefer to not being involved in
confusing market analysis and I respect them because such services
normally will bring them more time to do other important things in
their daily life. But the interesting thing was the most of signalers
did not actually place a stop loss point on their recommendations. Is
that so because they know they are right all the time? Or that's
because they did not lose half of their trading account in an
unexpected slump of 200 hundred points and a single trade.
However, the answer is most of them have something between
-1000 to -5000 pips of open trades on their signal board and they
actually trapped in desperately while they could cut the losing trades
and ran another one instead. Also I should mention that there are some
other types of system trading that called "Hedge Fund" and I don't
actually want to argue if they are right or wrong. I am definitely
talking to day traders who get into challenge with big bear every day.
Sometimes, I don't understand why a trader could be convinced
of not having a Stop Loss while we see almost every month an unexpected
uncounted impulse (I would call it Best of the Test for whom with less
of the rest) in the market.
There is no specific rule as to where you should place the
stop loss, so consider the below mentioned tips as the general rules
and ask your mentor to fit reliable Stop loss rules just for you and
your trading system(If you have one?).
- Many loser traders do place the same stop loss for all the trades
they execute without even trying to measure market environment.
- Don't be scared of placing a stop loss while it is for your gain and you must know what your profit objective is.
- Stop Loss should not be too close to the current price while
most of the stop loss enemies have ruined their trading accounts
already just by using very close ones.
- Stop Loss should not be too far from the point you get into
trade while it's better to not placing any Stop Loss rather taking an
unreachable, fictional protector.
- Try to not to risk more than the points of your profit goal.
Pro traders recommend to only take those trades which have at least 2
points of potential profit per 1 pip of potential lose, but I would say
it is completely depends on the money management system that you use,
as different money management systems has different recommendations for
Risk & Reward.
- Sometimes a trading system does not work if you risk less
than recommended %7 to %10 of your total account balance. It means you
trade oversize or you just entered the market when everyone else
getting out of the market. In this case this is not your fault as it
has a clear message for you "don't trade this way anymore and ask an
expert to solve the problem".
- If you are convinced enough that you can make up 1 million
dollar out of your 10000 dollars account by not using stop losses as
you may think you are the one who knows the price will be back on its
way to you instead of hitting new highs, well, simply you are wrong.
- Remember, there are no sky limits for the price of any of currencies in FOREX market.
- If you don't like to place a pre defined Stop Loss on your
trades, please ask someone to show you how to follow a wining trade by
using "Trailing Stop".
- Be sure it is better to have one or two losing trades with
100 points of lose, instead of being desperate with sinking into -1000
pips of dizziness.
How to Define the Best Stop Loss point?
Try these tools to define the most accurate stop loss points easily:
- Use 10 pips over/below the first Parabolic SAR spot(dot) appeared over/below the price candles for Short/Long Trades.
Note#1: Remember you just can use 10 pips above the parabolic SAR
dots as an Stop Loss point when you have a Short trade and Vice Versa.
Note#2: You realized that the Stop Loss obtained from SAR is too
far from the point which you want to enter the market. OK, this means
you are about to enter the market very late so better to not do it.
- Use 10 pips over/below the day before yesterday's HIGH and
LOW and in the case of the market has moved a lot far, use 10 pips
over/below the yesterday HIGH and LOW as a Stop Loss point for your
- Use two Moving Averages of 55 EMA and 144 MA. You may place
your stop loss just 10 pips below/above one of those two MAs depending
on how do you set up the profit/loss game for your Long/Short trades.
Note#: If you trade on the range market break out be aware of this
kind of Stop Loss setting, and it is quite safer to use another way.
- Place the Stop Loss 10 pips over/below Bollinger Bands Upper/Lower band for Short/Long trades.
- If you use Elliot Waves theory to analyze the market:
# Place the Stop Loss just 10 pips below the lowest point of the Second (2) wave in bullish trend when you LONG on Wave 3.
# places the Stop Loss 10 pips below the lowest point of the 4th Wave when you go for LONG on 5th Wave.
# Place the Stop Loss right above/below the top/low of the previous
wave when you go for SHORT/LONG based on A-B-C correctional waves.
- Aforementioned suggestions are based on 4Hours chart.
- Those ways of defining Stop Loss points has worked for me,
but It does not necessarily works for you, so ask your mentor or an
expert friend to do evaluate the probability of fitting those
suggestions to your trading strategy.
- 10 pips are because sometimes price hit the important support or resistance levels by more than a touch.
- Please don't forget, the Stop Loss issue is not actually a
game. It is not even an option for you; it is a "MUST" and will save
you when you can do nothing, so refresh your mind in this case.
- Forward your questions right to my email address email@example.com , I'll try my best to give you the best answer. Good Lock
by S.A Ghafari