METHODS FOR SETTING STOP LOSS. PART 1.
The market is volatile and very unpredictable, it is impossible to constantly correctly guess the future direction of the market, and in order not to lose everything in one transaction, a stop loss was invented.
Stop loss, like the trend, is our friend.
Without a stop-loss strategy, there can be no profitable trading strategy.
The ability to correctly find the stop loss zones will help each trader to avoid unnecessary losses and not to exit the position ahead of time.
Let's look at these strategies.
Methods for setting Stop Loss
PERCENTAGE METHOD
The interest method is a method in which the stop will be equal to a percentage of the capital, depending on your risk management.
At the same time, a large number of professionals recommend not to risk 1-2% of the capital in one transaction.
And this method is very popular because of its simplicity and ease of calculations. For example, if your capital is $ 10,000, and the risk management in each transaction is 1%, then the stop loss will be $ 100, everything is very simple.
CHART STOP
This method is based on placing a stop loss behind the support and resistance levels.
After several bounces from the levels, you can set a stop loss above the resistance or below the support, because if the price breaks through these levels, then potentially the deal can go strongly against you.
Such levels will be our protection, because it will be very difficult for the price to break through strong levels, but even if there is a breakout, we will be protected by a stop loss.
TIME STOP
Another method of setting a stop loss is a method based on time parameters.
This method will be of interest to those who do not want to leave their deals overnight or want deals to close at the end of the week and not remain open on weekends.
Everyone knows about the uncertainty that arises on weekends. At this time, it is impossible to close a position, and the news can be dangerous and you can suffer big losses at the opening of a new trading week, in order to avoid all this, this method was invented.
VOLATILITY STOP
Each currency pair has its own volatility value. Some couples walk fast and a lot, some walk less.
If a trader knows the average daily range of a particular pair, then he can set his stop loss slightly above this value so that the position is not closed prematurely due to market noise.
For example, if we imagine that GBP/USD has an average daily movement range of 100 points, then setting a stop loss by 20 points is likely to lead to premature closing of the position. But, if a trader puts a stop above the daily range, you can thereby protect yourself from accidental price spikes.
This method forces you to place large stop-losses, thereby giving you space to work so that the price is not closed prematurely.
Conclusion
Setting a stop loss is a vital condition for any trading strategy. Without a stop loss, you will inevitably lose capital. In the next part, we will look at other methods of setting a stop loss.
Good luck to everyone!
Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I will be glad 👩💻
Stop loss, like the trend, is our friend.
Without a stop-loss strategy, there can be no profitable trading strategy.
The ability to correctly find the stop loss zones will help each trader to avoid unnecessary losses and not to exit the position ahead of time.
Let's look at these strategies.
Methods for setting Stop Loss
PERCENTAGE METHOD
The interest method is a method in which the stop will be equal to a percentage of the capital, depending on your risk management.
At the same time, a large number of professionals recommend not to risk 1-2% of the capital in one transaction.
And this method is very popular because of its simplicity and ease of calculations. For example, if your capital is $ 10,000, and the risk management in each transaction is 1%, then the stop loss will be $ 100, everything is very simple.
CHART STOP
This method is based on placing a stop loss behind the support and resistance levels.
After several bounces from the levels, you can set a stop loss above the resistance or below the support, because if the price breaks through these levels, then potentially the deal can go strongly against you.
Such levels will be our protection, because it will be very difficult for the price to break through strong levels, but even if there is a breakout, we will be protected by a stop loss.
TIME STOP
Another method of setting a stop loss is a method based on time parameters.
This method will be of interest to those who do not want to leave their deals overnight or want deals to close at the end of the week and not remain open on weekends.
Everyone knows about the uncertainty that arises on weekends. At this time, it is impossible to close a position, and the news can be dangerous and you can suffer big losses at the opening of a new trading week, in order to avoid all this, this method was invented.
VOLATILITY STOP
Each currency pair has its own volatility value. Some couples walk fast and a lot, some walk less.
If a trader knows the average daily range of a particular pair, then he can set his stop loss slightly above this value so that the position is not closed prematurely due to market noise.
For example, if we imagine that GBP/USD has an average daily movement range of 100 points, then setting a stop loss by 20 points is likely to lead to premature closing of the position. But, if a trader puts a stop above the daily range, you can thereby protect yourself from accidental price spikes.
This method forces you to place large stop-losses, thereby giving you space to work so that the price is not closed prematurely.
Conclusion
Setting a stop loss is a vital condition for any trading strategy. Without a stop loss, you will inevitably lose capital. In the next part, we will look at other methods of setting a stop loss.
Good luck to everyone!
Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I will be glad 👩💻
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