Do These Considerations Before Doing Cut Loss
Trading is a risky job because it has the potential for losses and there is one way to limit and anticipate losses so they are not too large, namely by setting a cut loss limit in accordance with the profit and the risk of loss that can be borne. Cut loss means that the trader releases a trading position in a loss condition. In other words, dare to admit mistakes, and take action. Traders usually know when a trading position is wrong, what is rarely done is to cut loss. Cut loss for a trader is mandatory in maintaining capital, without cut loss discipline, the trader will not have a safety guard to protect capital in the event of a financial crisis, or something unexpected happens.
Benchmarks for Cut Loss
There are 2 ways that traders use as a benchmark in determining the cut loss point, namely the cut loss calculated from the purchase price, and based on the support. Here's the explanation:
Cut Loss Calculated from the Purchase Price
In this case, the trader sets a cut loss limit when the price has fallen by 5% to 10% from the trader's entry point, so that if the price drops to reach that range, the trader can immediately sell it. So the trader has limited the trader's losses further, and the trader has not suffered any bigger losses. The drawback of this method is that it is considered not too flexible because it does not consider the prospect of future price movements.
Cut Loss Based on Support Level
A trader cut loss can also be done based on the support point. Before a trader takes a trading position must determine the support level. After determining the support level, the trader only needs to install a cut loss if the price drops below the support level.
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