Learn where to set Stop Loss for a profitable trading

Learn how to set a stop loss. Find out where to set Stop Loss for a better trading

Do you want to know what is a good Stop Loss percentage? Watch our latest video to discover where to set Stop Loss and how to calculate your Stop Loss.

Where to set Stop Loss – powerful advice for your trading

Hi, traders! In this next video, we’re going to look at How to Correctly Place your Stops. Now, stop placement is a very important concept in the foreign exchange market. You want to get a balance between allowing your trade to have enough space to breathe, but at the same time, you want to, you know, limit your risk, so that’s as low as possible. And finding the balance between those two can be really tricky. So, this is just to help you correctly place your stops.

The concept you want to really embrace is, once you’re, sort of, certain that you know, or you understand the path you’re expecting your currency pair to take, what you then want to do is you want to put your stop in the place, which means you are definitely wrong, if the trade goes against you.

So let’s just take an example here. Here is the US dollar/Canadian dollar pair. Now, obviously, the market hasn’t closed and I’m not particularly commenting on the fundamentals behind this trade and I’m not saying this is a trade to take, but I just want to identify and show that, if this was a pair you were going to trade, where would you define and limit your risk in a sensible way? So, imagine that this bar closes and you’ve technically, you have got an inside pin bar, a very strong technical setup. Then imagine, not saying you have, but imagine you’ve got a fundamental reason to go short US dollar/Canadian dollar pair and you’re convinced that this is a good technical setup, you’re convinced on the fundamentals, where would you place your stop? Well, the obvious place to your stop would be the other side of this 150 exponential moving average, because if a price breaks above there, you know you’re definitely wrong. That is the place to put your stops. You wouldn’t put your stop here, the wrong side of the moving average, because price might retrace there and fall back down. So you are going to put a place where you know you’re definitely, definitely wrong. And the similar, you can use the Average True Range.

So, say you were trading in today and you wanted to know where to place your stop. Look at the Average True Range. So the Average True Range of the last 50 sessions, 50 days, has been… The average is 68 points. So, say you were wanting to know what kind of stop to use, if you use a 75-80 point stop, then you know that, if you’re correct on your analysis, you’re very unlikely to be stopped out.

So, they are the principles to use, you can use the Average True Range to help you and you can also use key technical places to put your stops above the other side of moving averages and, just leaving the fundamentals aside, look you can just see here, if you were convinced to trading along the US dollar/Canadian dollar pair, a stop the other side of these moving averages, beneath this low here, would have been a very sensible place to have placed your stop and would be the correct stop placement. Likewise, here, if you placed your stop there, you know, you could have got stopped out there. If you placed your stop there, that would be, again, a very sensible place to put your stop behind.

So I hope that gives you some ideas, a couple of places and most importantly, the concept of how to correctly place your stop.

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