I don’t usually prefer using a stop loss because it reduces the chances of making profits.
New traders unused to stops might also bear in mind you can change stops add them or take them out after entry. Check your platform to make sure you’re familiar. You should find your platform allows you to even add a trailing stop after entry and I can set the distance back from current price to whatever amount I wish.
Bear in mind that as well as fixed stops and trailing stops you can also use ratchet stops. Ratchet stops are where you move the stop-loss order manually to a more logical position. For example, If you’re long and you’re using the low of a recent candle as your stop-loss, then price prints higher and higher lows, you could ratchet your stop up to each new higher low. A plan helps, as does practice.
The percentage stop loss is the most common one out there and a lot of traders like to make use of it from time to time. I do too and I don’t risk more than 20% of my trade ever. No matter what happens, I keep it to 20. Better safe than sorry, I believe.
I hope by 20% risked, you mean that the size of the position is never more than 20% of your account. So if you had 5 trades open, your account would be fully committed and you could only open a sixth trade by closing one of the five. This is perhaps on the high side but I’ve heard similar figures before.
But by risk, traders normally mean what you could lose, not what you have put in, on the basis of how much of your account capital would you lose if your stop-loss was triggered? And for most of us that is 2% absolute maximum.
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But it is the number one strategy for risk management. It is very important to avoid losing all of your capital. Wonder how anybody can trade ever without this security blanket.
Like complete monitoring of your position? Hmm, this would only work with manual trading, right?
Well, you only need to review your position at the end of the next bar according to your selected time-frame.
As an example from the daily charts, let’s suppose I bought EUR/USD on 18/01 and set set a stop-loss at the low of that day’s range, 1.2054. I don’t need to monitor price until the next day’s close, when I find that the low on the 19th was higher, 1.2077, so I move the stop to just below 1.2077. This has removed more than half my risk. The low on the 20th was the same, the low on the 21st was higher again, 1.2109, so at the close of the 21st I move the stop again to just below 1.2019. The low on the 22nd was higher again so I could move the stop higher again, to just below 1.2151.
The only times I looked at the chart was at the close of each candle, which was once a day for this trade.
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I believe there are some brokers that make it compulsory for a trader to use stop loss. And some that don’t.
I don’t think there are brokers who would object to the use of Stop loss at their platforms. Nobody would benefit from such a thing. All the ones that I have used so far don’t have any such conditions. On the contrary I find them helpful with their spread and other costs. Analytical tools also of fxview & IG are workable for my kind of trading.
Thanks for the explanation mate, appreciate it.
Yea, wouldn’t risk 20%, that’d be insane.
I mostly keep my sl and tp very close to each other, I wouldn’t ever risk not using it.
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I avoid trailing stop so I always go with Stop loss. It is always better to set a stop loss as it minimizes the risk. One important thing is do not set it too close to your entry price so that small price movements does not evaporate your potential gains.
And how is that working out for you?
I prefer fixed stops because they work even if my terminal’s not on for whatever reason.
I am with you on this, extremely confused as to if my current placement of stop loss 50 pips from entry is right or not.
Setting a stop-loss by counting a standard number of pips from entry means you get a random exit if your stop is hit. Also, 50 pips on GBP/USD might work well as a rule of thumb, but why would that work so well for USD/RUB, AUD/NZD, EUR/CHF etc.?
That’s a good way of going about it. Fixed stops are way better. Don’t have to keep a track of the market.
That’s right. 20% is way too much. I usually go with 2% and don’t prefer risking more than that.
This is one thing I’m also very particular about. Even in my short experience of trading, I’ve seen the difference between trading with a calm mind and trading while I’m stressed. I keep trying to avoid stressful situations by taking some time off for walking or listening to music. Even meditation helps, tbh. These days I’m looking for brokers and so far I’ve found Xtb and Fxview that have conditions that are close to what I’m looking for. Let’s see what happens.