Because the market is volatile and unpredictable, it is hard to consistently anticipate the market’s future direction and to avoid losing everything in a single transaction, a stop loss was established.
Our friend, like the trend, is the stop loss.
There can be no effective trading strategy without a stop-loss plan.
The ability to appropriately locate stop-loss zones will assist each trader in avoiding needless losses and premature exits from positions.
Let’s have a look at these tactics.
Techniques for determining Stop Loss
1. Tradingview Email to SMS
Before I get into the different methods that you can use to reduce your downside risk it’s important to use alert management tools tradingview comes with email alerts which is great but my favorite tool is the email to SMS feature which means you can set up alerts that are sent straight to your mobile phone, SMS text messaging is great because there’s no chance of going into spam and I hear the alert come in.
In order to get this to work you need an SMS service to plug into tradingview, 160.com.au has an email to SMS conversion feature that allows you to do this, you can read their tradingview email to SMS article here.
2. Percentage Strategy
Depending on your risk management, the “interest method” is a way in which the stop is equivalent to a proportion of the capital.
At the same time, many experts advise not risking more than 1% of one’s cash in a single transaction.
And due to its simplicity and ease of computation, this approach is highly popular. For example, if your capital is $10,000 and each transaction’s risk management is 1%, your stop loss will be $100; everything is pretty straightforward.
3. Chart Stop Method
The stop loss is placed behind the support and resistance levels in this strategy.
You can put a stop loss above the barrier or below the support after numerous bounces from the levels since if the price breaks through these levels, the trade could move severely against you.
We will be protected by such levels since it will be difficult for the price to break through strong levels, but even if it does, we will be covered by a stop loss.
4. Time Stop Strategy
An approach based on time parameters is another way to set a stop loss.
This strategy will appeal to individuals who do not want to leave their bargains available over the weekend or who want their discounts to close at the end of the week.
Everyone is aware of the unpredictability that occurs on weekends. It is impossible to cancel a trade at this time, and the news can be disastrous, resulting in large losses at the start of a new trading week; to avoid all of this, this strategy was devised.
5. Volatility Stop Method
The volatility of each currency pair is different. Some couples walk quickly and frequently, while others take fewer steps.
If a trader understands a pair’s typical daily range, he may set his stop-loss slightly above that number to avoid the position being stopped prematurely due to market noise.
For example, if the GBP/USD pair has a typical daily movement range of 100 points, putting a stop loss of 20 points is likely to result in the trade being closed prematurely. However, if a trader places a stop over the daily range, you can protect yourself against price increases that are unintentional.
This strategy pushes you to use huge stop-losses, allowing you more room to work and preventing the price from closing prematurely.
6. Moving Average Strategy
The moving average indicator is employed while determining this sort of stop-loss setting.
The moving averages indicator has been around for a long time in the forex market and is very popular amongst experienced and inexperienced traders alike since it is easy and trustworthy.
Using a stop loss on the moving average indicator is a simple and straight-forward process:
Simply, wait for the price to pull back from the long-term average before placing a stop loss below the indicator line, or above it if we’re talking about a downtrend (short).
7. Fibonacci Levels
Fibonacci levels, in addition to the moving average indicator, can assist you in determining a stop loss.
These two approaches are similar in that they are both simple to utilize.
All you have to do is determine the market phase and wait for the Fibonacci levels to rebound.
Set a stop loss below or above the 78.6 level after recovering and establishing a trade in the correct direction.
These strategies are efficient because of their simplicity, which is based on simple guidelines. It is impossible to become confused with them.
8. Trailing Stop
When the price goes in your way, a trailing stop follows the price by a specific percentage, points, or dollar amount.
The danger is reduced thanks to the trailing stop, which protects your profit and prevents a good position from becoming a losing one.
A trailing stop is usually used when the price has already moved in the direction we want to go and we don’t want to lose money. However, be cautious about placing your stop too near to the price, remembering to account for price corrections, and allowing the price to accelerate.
9. High/Low Strategy
Swing traders are the ones that employ this approach the most.
The method’s essential is that the halt is set behind the lowest and maximum of a pre-determined day. Furthermore, if the price makes a new high or low the next day, the stop might be moved.
This approach isn’t the best, but it does exist, and you should be aware of it. When using, exercise caution.
Stop losses may be established in a variety of methods, but which one should you use?
As is common in trading, you should select the approach that best matches you, your personality, and your plan.
Keep in mind that setting an excessive stop-loss might result in a trade being closed too soon. If you make this mistake again and again, you might lose all of your money.
Stop losses should not be placed at random on the chart; instead, they should be placed in accordance with the technique and logic of price movement.
Don’t forget about volatility, which may knock you off your feet and force you to pivot in the way you desire.
Furthermore, the stop loss does not need to be precisely established at the support/resistance level. The price frequently crosses through these levels and then returns. It’s important not to overlook it.
A crucial guideline is to set a stop loss in each position. This should become a habit for you. You should determine where you’ll place your stop loss before you start trading. Don’t forget the rules; if you follow them, you’ll be successful.