How to Place a Stop Loss Order Properly ?Why Yours Always get Hit?

The purpose of a stop loss order is to set a maximum threshold of risk on any given trade. Making sure you are using a stop loss order is a critical component of any risk management strategy. You do have one right? If not, click here to read about creating your own money management strategy.

When you use a stop loss order properly you can minimize your risk and stay in the industry for the long haul.

If you are using a stop loss order incorrectly you will find that it is always getting hit, then the trade reverses and moves immediately back in your direction.

But why is this?

Place a Stop Loss Order – The Wrong Way to Do It

You decide that you will only risk 2% of your account balance on any given trade.

Your account is at $10,000. This means that your maximum loss per trade is $200.

Next you look at the char below, and decide that it is time to get long now.

So you go ahead and purchase 2 contracts of the SP500 futures (e-mini aka ES).

Each point is equal to $50 of profit or loss. You own two contracts.This means for each point the SP500 moves, you will lose or gain $100 dollars.Given the above, you place your stop at 2,468 to stay at your 2% maximum risk.You feel great that you are managing risk, you’re doing everything you have learned. You’re a pro.Two minutes later your stop gets hit.You think to yourself, oh well, at least I managed risk on this trade.But did you?What you actually did is take a really low probability trade, which was most likely going to lead to your stop being run.You actually placed your stop loss the exact opposite way as to how a professional trader would gain.#Write2Earn!