Putting Stop Loss
When adjusting your stops due to an increase in trade size, always move the stops closer to your current position. An increase in trade size is usually caused by adding on or scaling in to a winning position. This lowers the risk in relation to your larger trade size.
As a rule, always set your stops on the same time frame as you entered your trade. Many traders want to know about moving stops based on different time frames. For example, if you had used a daily chart to enter your trade, use the daily chart to set your initial stop.
For day traders there is a risk when holding a trade overnight. In day trading, you are supposed to close your position at the end of the day. Sometimes an opportunity arises and you decide to continue the trade overnight. There is always a possibility of unforeseen event occurring during the night.
There will always be one time frame that is your hot favorite. Suppose you are trading a 15 minute time frame. Therefore your stop loss and position size are based on the 15 minute time frame. In stock trading, unexpected event may create a gap open. This may adversely affect your account value.
5 minutes before the close of the day, your trade is profitable and you see much more profits if you hold the position overnight based on your 15 minute chart. How do you decide to take the decision to let the trade continue overnight?
Consider the following 5 rules. 1) The trade must currently be profitable. 2) The 15 minute chart must indicate a solid trend in place. 3) You should place a new stop loss based on your daily chart. 4) Your risk should be no more than 2% of your trading account based on your new adjusted stop from the daily chart. Reduce your trade size. 5) When the market opens the next day, be sure to monitor your trade.
It is crucial from the profit point of view to refine your strategy. The more profitable you will be, the better your stop strategy is. The most common thing that can happen in case of a poorly placed stop loss is that you will get stopped out on a correction. After being stopped out, the market will race back in the direction you were initially betting on.
Dont forget, repeated stops will add to your commission fees and spreads making your trading cost higher. Now you should keep this in your mind that there are no perfect stops. There is also no way to time the market perfectly. Your goal should be to get the probabilities in your favor by choosing a risk/reward ratio of at least “. This risk to reward ratio will also tell you about the placement of your initial stop loss.
Mr. Ahmad Hassam is a Harvard University Graduate. Try This 1500 Pips A Day Forex Signal Service from heaven! Learn These Candlestick Patterns! Get a totally unique version of this article from our article submission service
