Stop Loss: The Artist's Mind and the Trader's Strategy
Stop loss is an important skill in risk management. When you make a losing trade, you need to know when to stop and accept the loss. In theory, cutting losses and keeping them small is a simple concept, but in reality, it is an art. Here are 10 things you need to consider when using stop loss:
1. Don't trade without a stop loss strategy. **Before you enter an order, you need to know when to stop loss.
2. Stop loss should be set at a level outside the normal range of price fluctuations. **The level may indicate that your trading view is wrong.
3. Some traders set stop loss as a percentage. **For example, if they are trying to make a profit of +12% on a stock trade, they will set a stop loss when the stock price drops to -4% to create a 3:1 TP/SL ratio.
4. Other traders use time-based stop loss. **If the trade falls but never reaches the stop loss level or does not reach the profit target within the specified time, they will simply exit the trade because there is no trend and look for a better opportunity.
5. Many traders will exit a trade when they see a spike in the market, even if the price has not yet reached the stop loss level.
6. In long-term trend trading, the stop loss must be wide enough to capture the true long-term trend and not be stopped by noise signals in the early stages. **This is why long-term moving averages such as the 200-day moving average and moving average crossover signals are used to get wider stops. For potentially more volatile trades and high-risk price fluctuations, it is important to have a smaller position size.
7. You make money in trading, not lose money. **Simply holding and hoping that your losing trades will return so that you can stop losses without profit or loss is one of the worst plans.
8. The worst reason to sell a stop loss position is due to emotion or pressure. **Traders should always have a reasonable quantitative reason to stop losses. If the stop loss is too tight, you may be stopped out and each trade can easily become a small loss. You must provide enough room for the development of the trade.
9. Always exit a position when you lose the maximum allowable loss percentage of your trading capital.**Depending on your stop loss and position size, setting a maximum allowable loss percentage of your total trading capital to 1% to 2% can help reduce the risk of your account blowing up and keep drawdowns small.
10. The basic art of selling stop loss trading lies in understanding the difference between general volatility and trend-changing price changes. $BTC $ETH #BTC🔥🔥🔥🔥🔥🔥
