The Most Effective Method to Set a Proper Stop Loss

What is a stop-loss order? You place a stop-loss order with your broker to sell your securities when they are at a given price. These help to reduce the extent of loss you might incur. For instance, if you set your stop-loss order at any percentage below the price in which you bought the security, the loss will be limited to that percentage.

How to Place a Stop Loss Order

The best method to place a stop loss should involve placing it at a position where you will know that you were wrong about your strategy in case you’re hit. You cannot be perfect in all your trades. The prices of the stock will not always favor you after your purchase; this is why you should to practice patience.

Below are ways of determining how to place a stop-loss order:

Where to Place Your Order if You’re Short Selling

You should take your stop-loss order the same way you take purchasing stocks seriously. When short selling, you ought to understand stop limit vs stop loss. You cannot place your stop order randomly. It’s necessary to protect yourself from market losses. As a general rule, when purchasing stock, you must place your stop-loss order below the current price.

A stop-loss order protects your position by activating a market order if the prices go below certain points. A stop-loss limit, on the other hand, is like a stop loss, but it works at the stop price. When short selling, a typical stop-loss order falls below a swing high.

When Buying

Most traders are careful about how they place their stop-loss orders. You need to place the order at a level that creates space for fluctuation and which shields you in case of a loss. You can also utilize binance stop loss, but you have to understand trailing stop loss.

You place a trailing loss like a stop loss when selecting a position. However, the difference is that a trailing stop loss follows the price as it escalates or waits if it lowers. This might sound tempting to use, but you should to be tactful in how you utilize this tool. The wisest way to place your stop order is to place it as the prices fall and then rises. This proves that the price was supported at that low level. This is why you should trade following that direction.

Alternatives

On some exchanges, such as Binance or Kraken, you can set a stop loss. But for best practice, you should withdraw your money from exchanges and transfer them to your wallet. Even the best bitcoin wallets of 2019 will not be able to protect your cryptocurrency from the risk that your coin may collapse while you sleep.

These alternatives are not some rules you have to follow when dealing with your stop loss stock. You don’t have to place your order above a shorting or swing high, you can opt for other alternatives. 

If you decide to use technical indicators, you can utilize the tool to determine the level of the stop loss. The best way to decide on the best indicator is to try some of them. Try them individually and then together. You might decide to use several or switch them depending on what you are trading. Remember, simplicity wins when it comes to technical indicators.

You can also utilize Fibonacci retracement for levels when trading. These levels come from several series. Every new number is the sum of the 2 numbers before it. Fibonacci helps you to confirm the signal whenever there is a short shell in your region. Some folks also utilize volatility to set levels, for instance, true range. This helps to indicate how much a specific asset is doing at a specific period. This helps you to decide when you want to initiate your trade. Also, it can help you to know where a stop-loss order is placed. This indicator moves as the asset’s price fluctuates or increases. You can calculate a new reading as time passes. This helps you to understand how prices move as time passes.

Breakouts

This strategy works when the prices on your chart clear certain levels and increase volume. If you use this strategy, you will be in a long position when the asset breaks over resistance. You will also be in a short position when the asset gets below your support.

When assets go beyond specifies prices, volatility will increase and prices follow the breakout direction. Consider entry points - this is straightforward and easy. Also, consider the performance of assets and decide reasonably which price to set. Utilize chart patterns to improve your process.

Conclusion

It is wise to remember that you should not place your stop-loss order at any level. This ought to be a strategic activity, which should be about using several methods to minimize losses. The best thing to do is to find the strategies which work for you. Decide how to approach trades, deal with risks, and how to benefit from all this. Which strategies do you like using? Please leave a comment.

Author’s bio: Floyd Burton

Floyd is a freelance writer and an expert day trader. He is dedicated to helping traders get the best out of their craft by providing advice on strategies, analysis, and risk management. He focuses on stock trading, exchange-traded products, currencies, and other options. He actively participates in multiple markets.