When entering a trade, don't think about how much you can earn first, but how much you can lose first. So how do you set a stop loss? Which stop loss method is better?
1. From the perspective of a risk management consultant: As a risk management consultant, I would recommend determining the stop loss size based on the trader's risk tolerance and money management strategy. A large stop loss may be suitable for traders with sufficient capital and who can withstand a large single loss, while a small stop loss is suitable for traders with smaller capital or risk aversion. The key is to find a balance between protecting capital and giving the trade enough room to achieve profitability
2. From the perspective of a day trader: As a day trader who focuses on short-term fluctuations, I tend to set smaller stops. This is because day trading usually involves quick entry and exit, and small fluctuations may trigger a stop loss, thereby limiting losses and quickly looking for the next trading opportunity. A small stop loss helps me stay flexible and agile in a volatile market.
3. From the perspective of a trend-following trader: As a long-term trend follower, I prefer to set larger stops. This is because I focus on the medium- and long-term trends of the market, rather than short-term noise. A large stop loss can prevent my trades from being easily washed out in the face of normal market fluctuations, so that I can capture the complete trend.
4. Quantitative analyst perspective: From the perspective of quantitative analysis, the size of the stop loss should be based on historical data analysis and probability models. By backtesting historical data, a statistically optimal stop loss level can be determined, which takes into account both potential losses and the possibility of profit. Therefore, whether it is a large stop loss or a small stop loss, there should be data to support its effectiveness.
