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Initial Stop Loss Placement
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For more information please read ' Cookie Disclosure '. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFDs and Spread Betting are complex instruments and come with a high risk of losing money rapidly due to leverage. Because just like the break even stop loss, the automated way of trailing a stop loss is based on arbitrary levels that have no real significance in the market.
The market immediately moves in your favor up to 1. So where is 1. Who knows…there in lies the problem. This is where it pays literally to trail your stop manually using price action levels as the basis for your decision. The basic principle with manually trailing your stop loss is the same as the automated way.
It goes without saying that not every trade will work out this perfectly. My initial profit target was pips away. So right off the bat this represented a 4. Although I focus on money risked vs.
That was the potential gain on this one trade. On the second day 2 above my order to go long was filled with my stop loss 35 pips below. This immediately cut my risk by more than half. Instead of risking 35 pips I was now risking 15 pips. This brought my 2. Why did I do this? I figured if there was any chance of a push higher it would come without breaking the low of the inside bar on day 2.
Once day 3 closed, I was obviously in the green and had the bullish conviction I was looking for. Notice how day 3 closed — just a few pips from the high of the day. Price action signals such as this can also tell a lot about a market.
The rest is pretty self-explanatory. So what was the total percentage gain? I was initially risking 2. This is the icing on the cake so to speak. There is nothing complicated about this stuff. No proprietary indicators or confusing algorithms. Need clarification on something above? Well you missed my favorite, volatility based stops based on the average true range or a multiple thereof. Great article none the less. Volatility-based stop losses can be effective.
All have their pros and cons, I think it comes down to which method resonates with each of our own trading personalities. We are all looking for that stop loss method that is the best — I think those ones you touch on ALL have merit based on market conditions and ones tolerance.
Also ones general knowledge of trading — for me the stop loss method I use comes down to my trading instinct or intuition a lot of what is derived from my general trading knowledge, current swings, market pace, whats happening on higher time frames etc etc. I really love your instruction.
But I think I will not sleep tonight due to I drunk 2 cups of coffee and tea as your instruction. But will try my next week trading by that way. The article is clear, simple, and testable, and can be analyzed if the trader backtest the different ideas. Thanks for this insightful article and lesson. It is indeed a great eye opener on different stop loss stratagies.
I never understood trailing stop loss in this way before. I am so glad and i will put it into pratice and see how it will work out. I been in trades like this and wish I had implemented these stop loss strategy….. When trailing your stop, does this assume you have not set a final sell or buy target? Or do you trail your stop irrespective of your final target? Thank you very good article. Brilliant article Justin, just wondered though how you determine where to place the stop on the days low?
By how much off the low for example which surely is where a high proportion of the stops are placed? Fantastica ora so finalmente come posizionare correttamente gli stop loss senza farsi prendere dal panico, fermare commerci favorevoli e aumentare i guadagni. Please log in again. The login page will open in a new window.