Stop-Losses, useful, mandatory or just nice to have? - Part 1
Hi guys! Last chart I posted my first video chart format and that was new for me. Last week I also held a webinar, and that was also new. The topic was STOP LOSSE, and I explained many things about this subject. I will share some points with you that you can use in your trading.
1. What is a stop loss order and how can I use it?
The stop loss order is without a doubt the most important tool in your trading arsenal. It is basically the order you place when you enter a trade to be protected if the market goes against your position. For example if you are long BTC/USD from 6400 then a selling stop loss order can be placed under at 5XXX. Furthermore, if you are short BTC/USD from 6400 then a buying stop order can be placed at 6600. Basically your stop order for a long position is a sell order placed lower than your entry point and a stop order for a short position is a buy order placed higher than your entry point. Until I show you more example of how you should place your stop loss orders in another post please remember that a good practice is to use strategies of money management where you risk at most 5% of your capital if you trade aggressively (and have a really good strategy) or even lower like 1-2% for a more conservative approach. I use conservative approaches most of the time. It keeps my capital safe and I like keeping my money, not losing them in a silly way.
This percentage of your trade is what you risk, and this is represented by how much you will lose if your trade gets stopped. That is actually that risk we are talking about when we enter trades. Remember that all trades pose a risk of loss.
2. Should we use stop losses and are they really that important?
Short answer YES (please notice the caps). But let me tell you more about this. If you are serious about trading them you must understand that no trader has a 100% reliable trades. In every strategy there will be losses but keep in mind that these losses should be kept under control. This is the purpose of a stop loss to manage how much money you lose and to avoid the situation in which you have no capital left. Because with 0 capital there is a 0% chance to recuperate your money or make any profit. In the end any market will give results if you control your risk and protect your capital.
Here are some a few things to keep in mind when using stop losses some GOLDEN RULES if you want:
- Do not widen you stop loss ;
- Do not move your stop loss (just treat it like an immovable object);
- Placing stop order should be done in accordance to a trading plan but a bit more on that latter;
3. So where to place stop losses?
There are many variants of placing stop losses depending on your strategy and style of trading. Only you can decide which is the best for you. I will show you one in this chart, and one in another post later on.
Here are some rules for placing a stop loss:
- there must be a «barrier» between an entry level and a SL level (a support/resistence, an indicator, a historical high/low etc)
- SL size have to allow the market to «breath»
- Use a buffer to protect yourself from random movements (market noise)
Example: Stop Loss Order using swing highs/lows
For this type of SL remember:
- We can use previous swing highs and lows
- Use a buffer to protect yourself from random movements (noise)
My next live stream will be October 24. Follow me on here on TradingView to see more details.
1. What is a stop loss order and how can I use it?
The stop loss order is without a doubt the most important tool in your trading arsenal. It is basically the order you place when you enter a trade to be protected if the market goes against your position. For example if you are long BTC/USD from 6400 then a selling stop loss order can be placed under at 5XXX. Furthermore, if you are short BTC/USD from 6400 then a buying stop order can be placed at 6600. Basically your stop order for a long position is a sell order placed lower than your entry point and a stop order for a short position is a buy order placed higher than your entry point. Until I show you more example of how you should place your stop loss orders in another post please remember that a good practice is to use strategies of money management where you risk at most 5% of your capital if you trade aggressively (and have a really good strategy) or even lower like 1-2% for a more conservative approach. I use conservative approaches most of the time. It keeps my capital safe and I like keeping my money, not losing them in a silly way.
This percentage of your trade is what you risk, and this is represented by how much you will lose if your trade gets stopped. That is actually that risk we are talking about when we enter trades. Remember that all trades pose a risk of loss.
2. Should we use stop losses and are they really that important?
Short answer YES (please notice the caps). But let me tell you more about this. If you are serious about trading them you must understand that no trader has a 100% reliable trades. In every strategy there will be losses but keep in mind that these losses should be kept under control. This is the purpose of a stop loss to manage how much money you lose and to avoid the situation in which you have no capital left. Because with 0 capital there is a 0% chance to recuperate your money or make any profit. In the end any market will give results if you control your risk and protect your capital.
Here are some a few things to keep in mind when using stop losses some GOLDEN RULES if you want:
- Do not widen you stop loss ;
- Do not move your stop loss (just treat it like an immovable object);
- Placing stop order should be done in accordance to a trading plan but a bit more on that latter;
3. So where to place stop losses?
There are many variants of placing stop losses depending on your strategy and style of trading. Only you can decide which is the best for you. I will show you one in this chart, and one in another post later on.
Here are some rules for placing a stop loss:
- there must be a «barrier» between an entry level and a SL level (a support/resistence, an indicator, a historical high/low etc)
- SL size have to allow the market to «breath»
- Use a buffer to protect yourself from random movements (market noise)
Example: Stop Loss Order using swing highs/lows
For this type of SL remember:
- We can use previous swing highs and lows
- Use a buffer to protect yourself from random movements (noise)
My next live stream will be October 24. Follow me on here on TradingView to see more details.
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