Stop loss is a powerful trading tool designed to limit potential losses in case the market moves against your position. Here is an easy explanation for beginners based on the examples in your image:
What is stop loss?
A stop loss is a predetermined price level where you exit a trade to avoid further losses. You can place it at different areas depending on the market structure and price action. Here are the main scenarios where stop loss orders are applied:
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1. Behind the supply and demand zones
Create Supply: Place your stop loss slightly above the supply zone (the area where there is selling pressure).
Order Creation: Place the stop loss slightly below the demand zone (the area where there is buying pressure).
2. Behind the gap retest
Retesting the bearish gap: After filling the gap, place your stop loss above the gap.
Retesting the Upside Gap: Similarly, place your stop loss below the gap after the upside gap is filled.
3. Behind the structure retest
After the breakout, wait for the price to retest near the breakout level. Place a stop loss beyond the level where the structure (support or resistance) is invalidated.
4. Liquidity flow
In liquidity run-off scenarios (fake breakouts), where prices rise to attract liquidity before reversing, you can set a stop loss above these fake areas.
5. Continuity patterns
Behind the supply continuation: Place a stop loss above the supply zone after a new low is made.
Behind Demand Continuation: Place a stop loss below the demand zone after a new high is achieved.
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Key Tips for Beginners on Binance
1. Determine your risk levels: Only risk 1-2% of your total portfolio on a single trade.
2. Use conditional orders: Binance allows you to automate stop loss orders to exit trades quickly.
3. Analyze Market Structure: Understand whether you are in a bullish or bearish market to determine effective stop loss levels.
4. Practice risk-reward ratios: Target trades that carry at least a 1:2 risk-reward ratio to ensure long-term profitability.
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