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Stop Losses: A Trader's Best DefenseIn a perfect world, every trade would go our way, but alas this is usually not the case. A stop loss is a risk management tool used by traders and investors to minimize their losses when trading. It is a predetermined price level at which a trader's position will automatically exit the market, causing the loss to be realized. Stop losses are crucial to any trading strategy, as they help traders limit their losses and stay disciplined. In this blog, we will look at what stop losses are, why they are important, how to set realistic stop losses, and five different examples of stop losses with a description of how to set the stop loss. What are Stop Losses? A stop loss is an order to sell a security when it reaches a particular price. It is a predetermined price level at which a trader's position will automatically exit the market, causing the loss to be realized. This means that if the price of the security falls to the stop loss level, the trader's position is automatically closed, and any losses incurred are limited to that level. Stop losses are essential because they help traders limit their losses and stay disciplined. Why are Stop Losses Important? Stop losses are important because they help traders limit their losses and stay disciplined. In trading, it is easy to become emotional and let your losses run. Stop losses help traders avoid this situation by automatically exiting the market when the price reaches a predetermined level. This ensures that losses are limited, and traders can move on to the next trade without being emotionally affected by the previous loss. Setting Realistic Stop Losses Setting realistic stop losses is crucial to any trading strategy. A trader needs to consider the volatility of the security, the trading style, and the risk-reward ratio when setting stop losses. The stop loss should be set at a level where the loss is acceptable but not too close to the current price level, as this may result in the stop loss being triggered prematurely. A stop loss should also not be set too far away from the current price level, as this may result in the trader losing more than they are willing to risk. Stop Loss Examples Below we will list five examples of setting effective stop losses. For consistency, we are going to use the same long stop loss example, but these same examples can be set for stop losses for short positions as well. Percentage-Based Stop Loss: A percentage-based stop loss is a stop loss that is set at a specific percentage below the purchase price. For example, if a trader wants to place a long at $0.088602 and sets a 0.5% stop loss, the stop loss would be triggered at $0.88160. For a short stop loss at 0.5%, you would add the value instead and have a 0.89035 stop loss. To set a percentage-based stop loss, the trader needs to determine the percentage they are willing to risk and place the stop loss order at that level. ATR-Based Stop Loss: An ATR-based stop loss is a stop loss that is set based on the average true range of the security. The average true range is a measure of volatility and is calculated by taking the average of the high and low prices for a particular period. To set an ATR-based stop loss, the trader needs to determine the number of ATRs they are willing to risk and place the stop loss order at that level. For a long stop loss, you would subtract the ATR times its multiplier from the current price. For a short-stop loss, you would add the ATR times its multiplier to the current price. The unique upside to this stop-loss style is the ATR accounts for market volatility which can aid your risk management and help set more appropriate stop losses. Using Moving Averages or Super Trend: Moving averages and super trend are technical indicators that can be used to set stop losses. Moving averages are calculated by taking the average price over a specific period, while the super trend is a trend-following indicator that uses the average true range to calculate the stop loss level. To set a stop loss using moving averages or super trend, the trader needs to identify the period and place the stop loss order at the appropriate level. The Moving Average or Supertrend can then act as a moving stop loss as it trails the price. 1. Moving Average: 2. SuperTrend: Donchian Channels: Donchian channels are a technical indicator that can be used to set stop losses. Donchian channels are created by taking the highest high and lowest low over a specific period and plotting them on a chart. To set a stop loss using Donchian channels, the trader needs to identify the period and place the stop loss order at the appropriate level. In the example below we use a more standard 20-period Donchian level to identify areas of lowest low interest that would be a good place for a stop loss. If we were setting a short order we would look to recent highest highs as potential stop-loss areas Conclusion Stop losses are crucial to any trading strategy, as they help traders limit their losses and stay disciplined. When setting stop losses, traders need to consider the volatility of the security, the trading style, and the risk-reward ratio. Stop losses can be set using many different techniques, including percentage-based, ATR-based, using moving averages or super trend, and Donchian channels. By setting realistic stop losses, traders can minimize their losses and stay disciplined, which is essential for long-term success in trading.
Editors' picks
MEducation
by LeafAlgo
40
Some simple DCA idea. Maybe a bit better than the average one ?Hello, everyone. This is my first idea, so please pardon me if anything goes wrong. With the bear knocking at the door a while ago, it seems that everything goes down. So maybe we should embrace the investor side ... The boring but rewarding path. On bear markets, everyone accumulates. The DCA it seems a viable option, as they say : "Time in the market beats timing the market". We could DCA by volume profile, Fibonacci retracements, or several other techniques. But why going so "complex" when we can make everything simple ? On Crypto, it's tested that we will see at least 6 consecutive "30% drops" after the latest "30% drop", if not even more. Influenced on this idea by our regretted mathematician, Mr. Fibo ... And applying it to the charts, I just have a new indicator with an embedded strategy inside. In order to do everything right , I am asking the community to give me feedback. And if there is a real demand for my creation, I will respond accordingly :) The questions will be : 1. Do you think this strategy will bring you profits ? If so, do you want to try my indicator for easier backtesting ? 2. How useful do you think it will be a trading automation website, to be launched in 2023 ? Dedicated to Risk/Reward ratio trades, but also containing this idea ? I am humbly awaiting your response, so ... Let's help each other ! Best regards, Ionuț
Education
by dogaruionut1993
3
Why Chase the Wind?Some like running. Others like direction. Some just want to feel the breeze again. You will long for the past and try to repeat what you did to succeed, only to realize that nothing lasts forever. I don't think this pattern of lower lows in percentages of bullish stocks, and higher lows in bitcoin price, will last forever. If money printing stops and lending dries up, maybe bitcoin will go sideways for a while? Although institutional selling has happened, did the crowd sell yet? I don't know. If it did, maybe the green divergence pattern plays out, otherwise the red might come true? Considering that we reached 17% of stocks bullish, that could seem like some sort of bottom, as was the case in 2015. But this entire chart is focused on a bull equities market, and so it is not reasonable to adjust our expectations towards past results. In my opinion, we should only use it as a reference of severity or volatility. Lately there is this pattern of lower lows in the Percentage of Stocks, and if the market is truly bearish, we should get a low that is lower than 17%, the current low, as seems to be implied in the chart in a megaphone-like pattern (grey line). Maybe it won't go to 6% like in 2020, but I have a hard time believing that. What was going to play out then, clearly has not yet played out and was delayed via bailouts. One might consider that because of the severe volatility 2020, it is not reasonable to expect a lower low in the percentage of stocks, which I think is a reasonable consideration, but it is not clear yet if the bearish momentum has finished playing out in terms of stock prices, especially large caps. Bitcoin price wise, I think we could linger on a bit here as neither bearish or bullish, but unless we make a higher low in the next few months (boring scenario, green), it will dip lower(red). I think 18.5k is a decent bottom for the neutral/bullish view(green), and ~6-12k is a decent bottom for the bearish view(red). What scenario do you think will play out? Personally, I just want to wait and see if we set a bottom here, but there's been a big gamma squeeze the past few days and I closed out most of my longs in the past few days out of discomfort. So, not necessarily short, but not long either. There's a lot of uncertainty here and it's always good to take profit while you are ahead. I like using the "Percentage of stocks" type symbols, it's a nice litmus test for the market. Hopefully you will find them useful. Some are not links but these are all symbols under the INDEX: category 200 day MMTH S5TH R2TH NDTH 50 day MMFI S5FI R2FI NDFI 20 day MMTW S5TW R2TW NDTW Take care and don't forget to hedge your bets! -your fringe chartist
BITSTAMP:BTCUSD
by fringe_chartist
2
Remember to Practice Good Risk Management.Hello Traders, I've created the chart above to remind everyone @TradingView to practice smart risk management. Whether you follow a 1%, 2%, 7% rule... The odds show that you will run into a losing streak in your trading career. Whether you're able to bounce, or have greater Returns on your Wins than your Losses will determine your fate. Happy Trading. Sincerely, Mike L. (UPRIGHT Trading) The chart above should look like this:
AMEX:SPY
by UPRIGHTTrading
2
DASH - Think Of It As a Revolutionary Buying Opportunity DASH has been a little scary over the last capitulation. It has broken below summer lows just like EOS did even earlier. I would not worry about that too much as we have to know that market cap is not that big, so price can be much more volatile. Just like with btc we can still form a double bottom, but i highly doubt we will go any more lower as we are already as low as we were before the alt season of 2021. B8ig buying opportunity imo as right now more 3000% gain is shining. I am not a financial advisor so non of this should be taken as a financial advise. Be well. KRAKEN:DASHUSD
KRAKEN:DASHUSDLong
by CR35
date and price rangehi to all . As you can see, we measured 3 hawings and found 3 price floors . And you see the ascending channel . In the first move from the price floor to the price ceiling, we had a volume of about $ 12.3 61 million .In the second move, we had a volume of $ 14.96 million . And in the second move, we still have only $ 2.416 million . From this, it can be concluded that the main trend is still strongly upward and there is still a lot of core volume to enter the market and we will see a significant increase in prices in the near future.And about the bars. We have 147 in the first move. In the second move we have 227 and in the third move we still have 82. And from this it can be understood that the ascending bars have not reached the standard level yet and we have more ascending bars.And you can understand about the percentage of price growth . As a result, the uptrend is still going strong and the market is buying opportunities, and bitcoin will soon reach above $ 100,000. However, this is still just a possibility.
BITSTAMP:BTCUSD
by SmherS
3
Trades Update! All the trades are melting! A lot of the trades didn't pull all the back to the ideal entry zones before melting off, however, that is only one entry, there will be other opportunities. I managed to get an entry into EUR/CAD from a 2 Hr bullish engulfing candle which showed bullish momentum and intent. I did buy limit order for 50% of the candle from which price came down perfectly to meet before taking off. My stop is 20 pips below the low which normally gives price enough room to move and I am targeting the weekly key level around the region of 1.46500 which is a 1 : 3.7% gain if take profit is hit!
by PercentageOverPips
3
VIRGIN GALACTIC HOLDINGS (SPCE) IS IN STRONG BULLISH FORMATIONVirgin Galactic Holdings Inc (SPCE) is in strong bullish formation after completed the third spaceflight and the first-ever spaceflight from Spaceport America, New Mexico, launched on May 22, 2021. The share price rose by more than 140% in less than a month after it hit the strong support level of 14$ per share. The Unity vehicle (the carrier plane), with pilots Dave Mackay, powered to a height of 89km (55 miles) and then glided back down to Earth. The company has more than 600 paying customers – including movie and music stars waiting to take the same flight. But they will get their chance if US Federal Aviation Administration fully licenses the spaceship. The company had problems with interference issue, which aborted a previous flight in December. Following the worse than expected financial results in February, Sir Richard Branson (the founder) and four entities sold 5,584,000 shares of Virgin Galactic between April 12 and 14. The share price drop to 14$ per share – Covid-19 pandemic levels, which pandemic inflicted damage on the whole travel business. But during the last month, the stock's performance is more than reasonable, and the strength of the upward movement shows no sign of weakening. After the rebound from the intense psychological level at 14$ per share, the price breakthrough 23.6 and 38.2 Fibo resistance levels, and yesterday closed at 50.0 Fibo level and very close to 35$ per share. If impulse upward movent will continue and breakthrough 50.0 Fibo level, it is possible to test 61.8 and looking for the high from February this year. In another way, the price may test back again 38.2 level and confirm it once again as a support level already.
NYSE:SPCE
by legacyFXofficial
EOS Has a LOT Of Potential In Terms Of % GainsIn terms of percentage gains EOS has a lot to go. We probably wont see prices below $6, maybe even higher, but that is just my opinion from what i see on a chart. Where are at a beginning of a alt season so it is hard to miss a coin that would not have some kind of % gains in it, but to find the right one, you have to look from a bigger perspective so you can see what it has done in the past. History tends to repeat itself so as human psychology imo. From the chart perspective, 4.236 fib. extension takes us as high as $93, but in my opinion prices between 50 and 70 are more likely to be reached. It could just surprise us all and go even a bit higher than $100, but quite unlikely imo. We first have to break above $8.6 resistence line, from where we were rejected and couldn't reach for almost 2 years now. Breaking above this (blue) line would confirm the explosion in price, but will see. The predicted price is just a representation from a 2017/18 alt season and does not mean it will go exactly like that. I am not a financial advisor so don't buy anything that a say. Wish you all successful investment. BITFINEX:EOSUSD
BITFINEX:EOSUSDLong
by CR35
7
RISK TO REWARD 📚 An Educational Write-up on How to Find ThisIntroduction: This illustration explains the minimum Risk-To-Reward ratio needed based on your average win-rate while using a fixed % risk amount. "Risk-To-Reward ratio": The ratio of what you stand to lose compared to win. "Fixed % Risk": A static % amount of your total account balance at risk per trade. "Fixed Dollar Risk": A static $ amount at risk per trade. Regardless of account size fluctuations. "Win-rate": The % out of all trades that are winners. Steps: 1. Before being able to determine what Risk-To-Reward is acceptable to use, you will need to create a baseline measurement of your strategy's performance. 2. To create this baseline, you will need to backtest your strategy and obtain its current average win-rate. 3. This can be done using your pre-determined entry logic with a fixed stop-loss/take-profit offset amount. (Adjusting your entry logic prior to finishing a round of backtesting may produce skewed results. Do not "cherry-pick" trades as that will lead to false results.) 4. Based on the resulting average win-rate you can then find the minimum Risk-To-Reward ratio you should be using. 5. Backtest again using the more optimal Risk-To-Reward ratio and repeat this step until the most optimal backtest results are obtained. Here is the formula for determining your Average win-rate after you have tallied the wins/losses of your backtest: #W = Number of winning trades #L = Number of losing trades (#W / (#W + #L)) * 100 = your average win rate % ----- Introduction to Fixed Dollar Risk: We have found it common for people to use the logic of fixed dollar risk amounts when calculating win-rates needed to break even, but then to use a fixed % risk in practice. This simple-to-make mistake can lead to account erosion over time due to the way compounding works. The fixed dollar approach uses relatively simple math for breaking even as shown below. Example: 3 losing trades followed by 1 winning trade using 1:3 risk-to-reward achieves breakeven (ignoring trading fees and slippage) This risk-to-reward ratio itself implies the win-rate needed (lose $100 three times, win $300 once, you break even). The fixed dollar amount risk doesn't deal with compounding. As such, its logic cannot be used for fixed %. ----- Using Fixed Percentage Risk: Fixed % uses a more complicated and less apparent method for calculating how to break even. As shown in our illustration, if you take three losses in a row you won’t break even after your next win. Fixed % is always dealing with the same % of your current balance. So as your balance decreases, the total dollar amount risked is less, and the total dollar amount gained with each win is reduced. Thus, strings of losses require additional wins compared to the fixed dollar approach. The fixed % method ensures against account erosion by showing the minimum win-rate needed to use each risk-to-reward ratio. MATH NOTE: We used a simplified method for finding the minimum win-rate to make this useful and generally applicable. Our method is based on a given risk-to-reward ratio and assumes the max number of losses in a row to produce a minimum win-rate, it does not factor in all different possible loss strings and their probability. ----- WHY USE FIXED % !?: The question one will have at this point is, "Why to use fixed % if it is so F'ing complicated!?" The answer to that is simple. Despite being more complicated, fixed % is actually objectively better by almost every other measure. With fixed % you generally perform better than fixed dollar during strings of losses and wins. As with fixed %, you lose less as you go down (because you only ever lose 1% of your balance), and you gain more as you go up (because of your winnings compounding). Not only that, but you also perform better even when losses and wins are more scattered, as you can see on the chart below. ----- Conclusion: Fixed % is more complicated than fixed dollar... to say the least. However , it is none-the-less superior in most instances. Use the logic above while using fixed % risk, since if you use fixed dollar logic but use fixed % in practice you will underperform your theoretical results. If there are any major flaws in our logic/approach please let us know in the comments as of course, we are looking to provide as accurate instructional writeups as possible!
Editors' picks
BITSTAMP:BTCUSDEducation
by AlphaBotSystem
65