Determining or placing a stop loss in trading is an important thing that a trader must have. Traders must understand that the total profit earned is actually the result of the difference between gross profit and loss profit. So, traders need to remember that trading success occurs when the total profit exceeds the total loss. It is almost impossible to trade without the slightest loss, so risk management is seen as very important in trading. Stop loss is the lowest price limit value determined to limit losses. When the price movement touches this value, the system will automatically close the order or position.
Stop loss can be done in two ways:
Manuals. Here the trader closes trading positions manually
Automatic, With the sophistication of the existing online trading software, stop losses can be done automatically. Traders just set the criteria for the desired stop loss position, and then it can be left. Later the software will run the stop loss when the specified price level is reached.
MISTAKES IN SETTING STOP LOSS:
Not Planning Stop Loss from the Beginning
The first step that traders need to take when opening an order in the market is to determine the stop loss according to the trader's analysis of the current market conditions. After determining the stop loss, then determine the ideal lot size. That way, traders can better adjust orders according to market movements.
Stop Loss Too Short or Too Far
Another mistake of setting a stop loss is being too close to the entry level for fear of losing too much. However, this is actually risky because forex price movements are very volatile, especially major currency pairs. So if a trader places a stop loss that is too tight, the trader's order will be closed automatically before the price can move in the direction the trader wants.
On the other hand, a stop loss that is too far from the entry level risks a relatively large loss in one transaction. To avoid this, the trader can place a stop loss according to the risk tolerance limit that the trader can accept. Usually the novice trader's loss risk limit is in the range of 1%-5% of the capital for one transaction. Choose a risk limit that is comfortable for the trader and follow that limit consistently.
Switch Stop Loss
The mistake of placing a stop loss is to move the stop loss. The solution to the temptation to move your stop loss is discipline. Discipline in choosing a stop loss limit according to the trader's risk tolerance, as well as discipline in complying with the stop loss that the trader has set before placing an order.
Setting a Stop Loss Right at the Support or Resistance Limit
Support and resistance can indeed be references that can help traders find trading opportunities. However, you should avoid placing Stop Loss right at the support or resistance limit. This is because there is a possibility that the price will change direction after crossing the support or resistance limit. It would be wise if the trader put a Stop Loss a few pips below the support level or a few pips above the resistance level.
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