How to find the perfect stop loss strategy to suit your trading style
When you trade, there are a variety of different ways you can manage your risk. One of the most important strategies are stop losses. Fixed stop? Automatic trailing stop? Manual trailing stop? It can be hard to work out which one is right for you. Read on to uncover how you can find the perfect stop loss strategy tailored to your style of trading…
There are three main types of stop loss strategies that you can use, Max Munroe in Forex Round-Up
All these methods have pros and cons.
You might find the trade goes in your direction then completely reverses, hitting your stop and causing you to lose. If so, you could consider using a more aggressive or automatic stop loss to lock in profits quickly.
Or perhaps you find you are often in the right direction of a trade, but notice your trade hits your stop too quickly. If this is the case, consider not moving the stop up so quickly or tightly. Instead, try running fixed stops until you are clearly in the money.
The most experienced traders can struggle with stop losses
Even traders who have a great amount of knowledge and strong risk/reward still struggle. It's because they're so strict on stop losses. They forget to use the same skills they use for entering trades in reverse for stop loss placement.
If you're very good at picking the direction, but move your stops up regardless (and too close to the price), even if you know price stands a chance of retracing, think about tweaking your approach.
Maybe you need to look a little more at how you give your trade more room to breathe.
Or think about banking some profits on the trade early and look to get back in at the stop level. Then, if you are right, you can continue in the trade.
So there you have it, how to find the perfect stop loss strategy to suit your trading style.