Traders Stop Loss
How does a trader or day trader determine a stop loss - such a simple, yet so complex question.
No one can tell you what to set your stop loss at, but you. Many traders need ideas on how to arrive at the answer to that all important question.
When a trader or day trader determines a stop loss, they should first determine how much, in Dollars, Euros, Yen or other monetary values, they can afford to lose, on any one trade. Setting a stop large at too large of an amount can take you out of the trading game, real fast. Remember, what ever amount you are prepared to lose on any one trade, your profit potential on any one trade should not be less. Once you take a stop loss, you will want to work to trade and gain back that loss on another trade, or other trades.
The real answer to what is a tight stop loss is when disciplined traders take that pre-determined stop loss, at the time the stop loss hits. No ‘hoping’ a trade will turn back in your favor after you hit your stop loss because no trade should be based on hope. Trading in the Financial Markets is definitely no place for hope. There may be an occasion when, shortly after you take your pre-determined stop loss that your stock, Futures Contract or Forex contract turns around, in your favor - this will happen and is something all traders need to deal with. Don’t let this incident deter you from taking a pre-determined stop loss or, you could become an immediate investor in that stock, futures contract or Forex contract. Learn to read the movement of stocks, Futures and/or Forex. Monitor charts and consider our Chart Settings for Stocks or Futures. Is there something you missed when you entered the trade that should have indicated it was not a good trade, for you? Did you chase a trade moving higher or lower because you were afraid to miss the run? Did you catch a falling knife?
Part of a successful trading strategy is setting a stop loss based on either a specific number of points, pips or contracts on any one given trade taken or anticipated. Determining a stop loss is as important as your need to determine the number of shares to trade based on your individual total trading capital, your own personal risk tolerance and depending upon the amount of money you wish to utilize on any one trade.
You may want to put together a chart based on a certain number of shares or contracts per various dollar cost per share of a Stock, Futures contract or Forex contract would equate to a $X for a stop loss; if you want to determine your stop loss based on the total dollar cost for a short term invested trade. Basically, for an amount invested equivalent to $X in one short term trade with a Stock, Futures contract or Forex contract your stop loss on any one given trade would equal $X for that stop loss.
Maybe you prefer to set your stop loss based on a specific percentage of the total amount of money utilized for a short termed investment i.e. day trade, based on per any one trade. You could specify, maybe in a chart format that, if you invest $X in any one trade for Stocks, Futures or Forex, you are willing to loss X% of the total cost of that trade.
Stop losses utilized by our Expert Teams on any one given call: Stocks Trading Room - 1 point stop loss; Futures Trading Room - $150 stop loss and Forex Trading Room - stop loss specified per call made in the room, at the time the call is made. These specified stop losses are simple and specific, no room for error or question. When our Expert Team Members make a call, they know prior to posting that first winner alert, what their stop loss will be, for that call.
Stop losses are not fun or enjoyable but they are, a fact of life when trading in the Financial Markets whether be the Stock Market, Futures Market or Forex Markets - all traders, day traders, short or long term investors will take a stop loss. However, a rule of thumb is when a trader takes a pre-determined stop loss; they remain in control of the trade and don’t let the trade control them. It is important to note that, during fast moving market conditions it may be possible for a trader to have a difficult if not at times, almost impossible to exit a position. Focus on each trade you are in, for the short term. Long term investors generally have different stop loss rules, they are generally wider.
Short term traders and day traders must know their position at any given second, not minute, on any trade they take. Many traders utilize a trailing stop which should be discussed with your broker for availability as well as, details on how a trailing stop works.
Just remember, don’t panic when you take a stop loss as it is part of the business. If a trader becomes emotional after taking a stop loss, be a wise trader, step away from your trading platform and get a breath of fresh air if needed. Never ever attempt to make a trade when you are emotional - the results may be devastating to your financial well being. Evaluate the trade you took a stop loss on and make a strong mental note on how you made the trade in an effort to not repeat the trading error. When you return to your trading station, consider switching to demo trading for a while. Work on building confidence in your trading strategy as well as, facing the pain of taking a stop loss. Time spent on demo mode may seem worthless when in fact; it may very well be priceless.
If you would like assistance developing your own personal trading strategy as well as, working on determining your own stop loss strategy, consider a One-on-One Training Session with one of our Team of Experts. Many times, the cost of a training session can be equivalent if not less than, what many traders lose on one trade.