You need to lean how to position your stop loss in relation to the market activity. Placing arbitrary stops is not a good idea. Many traders incorrectly choose a stop so their loss is the same amount each time they are stopped out. Dont pick an arbitrary place to put your stop loss.
You need to place the stops in accordance with the market conditions. If you use an arbitrary place for your stops, you are completely disregarding the meaningful market support and resistance levels where the stops should be placed.
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.
Identifying correct support and resistance is very important for a trader. For example, 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.
For example, in a bullish trend if you have an area of support at $30, you should set the stop loss at 3% below that. The formula that you will use is $30 (support price)*0.97 (3 percent less) = $29.1 (Initial Stop Loss Level).
For example to say that you are willing to lose $200 in a trade is to disregard the current market conditions. Do not use arbitrary stops based on flat dollar amounts that you are willing to lose.
If you do not use stops at all, you are inviting failure. 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.
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.
In such a market like the currency market, you can set a mental stop and get out quickly if you are hit. 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.
Learn how to place the stop loss correctly. As the trade progresses learn how to move the stops. Always move the stop closer to the current position to lower the risk in relation to your larger trade size when adjusting your stop due to an increase in trade size.
Author Resource:
Mr. Ahmad Hassam is a Harvard University Graduate. Try This 1500 Pips A Day Forex Signal Service from heaven! Learn These Candlestick Patterns !
![[Valid RSS feed]](http://www.look4articles.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites
![[Valid RSS feed]](http://www.look4articles.com/images/rss.jpg "XML Feed For RSS")