This article focuses on the how to’s of stop loss.
There often comes a point after entering a trade position where it becomes apparent that the original idea is not working; which can result in a draw down of the traders account. Firstly, let’s be clear, trading is not about picking “winners”. This is often the first thought in a traders application to the markets, especially short term traders.
Trading is certainly about looking for the high probability entry points into a moving market but as many traders find out not all entry points are correct. This is where the stop loss is required. Stop losses are used because price action can be unpredictable. Traders also need to be aware of liquidity. Stop Loss acts as a safety net to protect you from adverse price movements. Constantly evaluating the incoming price action is one of the true challenges of trading.
Successful traders have found that combining proper risk management with a trading “edge” allows them to cut losses and let profits run. Many successful trading plans will show more losing trades than winning trades but still show considerable profits in any market condition.
Set your stop level at the same time you enter a position
Here are 2 very common stop loss methods. Try them out by going back over some of your past trades.