Hi
I just want to know how to set a stop loss on a trading chart and why is it important to set it? what are the disadvantages?
If you haven’t studied at the school here, you may find this worth a read
http://forums.babypips.com/newbie-island/80849-newbies-guide-becoming-forex-trader-post772272.html#post772272
“How to do it” depends on what software/platform you’re using.
I don’t know of any disadvantages.
It’s important to do it for three main reasons …
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Long-term, successful trading is all about risk management, and one needs to monitor risk carefully, which means knowing exactly how much you have “at risk” in any given trade at any given time.
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Anyone can have a power-cut, internet outage or computer problem suddenly and unexpectedly, and it’s good to know that your risk is limited, as far as it can be, if you have such an accident when you have an open trade (this reason is kind of a “no-brainer”: it costs nothing to enter at least a “disaster-stop” automatically with every trade you ever enter, even if that’s all you want a stop-loss for).
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When you enter a trade, you have a reason for it. As nobody can confidently predict how prices are going to move in the case of any individual trade, it’s helpful to have a picture in your mind of “the level the price would have to reach for you no longer to want to be in the trade because your entry-reason has been invalidated by price-movements since you entered it”. A stop-loss is a good and disciplined way to achieve this, so that you don’t get tempted to leave it open indefinitely, while it’s costing you money “just to see what happens and whether it reverses” because those tend to be the most expensive mistakes to make. If you’ve heard the sayings “Cut losses short and let profits run” and “The first loss is the cheapest”, you’ll probably know what I mean.
Yes what Lexys said.
I also try to think like Market Makers and like to guess where most people would place their stops, I then go a little further away just to be sure that my trade has been invalidated. If this means I have to reduce my position size then so be it.
My stop levels are 1% risk of my trading capital.
So if I have £10,000 in capital I am risking £100 per trade.
I currently use 1:100 leverage.
Example:-
Trade 1 lot (100,000)
Stop loss 10 pips = £100
If I need a larger stop loss to say, 20 pips, I would then reduce my position size down to 0.5 lots rather than risking £200 on 1 lot.
Stop loss is very important to use in your trading. It saves your account from crashing. It is a very important tool in order to maintain your existence in forex market.
Avoiding stop loss trading tool means, you are taking 100% risk for your each and every single trade! That’s really dangerous to trade in live account without using SL or trail stop! In addition, traders need to set their SL positions according to the support and resistant position with buffering style (few pips above or below). I always use SL and TP in my live trading!
Yes stop loss still used many trader to manage the risk in trading, I am also still always use stop loss to manage the risk although sometime very annoying if often hit stop loss, but without stop loss also will making anxiety if order against the trend and eventually faced with margin call account