moving average method
When choosing this type of stop loss setup, the moving average indicator is used.
The moving averages indicator has been known for a long time in the forex market and is used by many traders in their trading, as trading with this indicator is simple and reliable enough.
The strategy of setting a stop loss on the moving average indicator is very simple:
We have to wait for the price to rebound from the long-term average and put a stop below the indicator line, or above it if we are talking about a (short) downside bounce.
In addition to the moving average indicator, Fibonacci levels can help you set a stop loss.
These two methods are somewhat similar and both are quite easy to use.
All you have to do is first measure the phase market and wait for the rebound of the Fibonacci levels.
After bouncing and opening a position in the appropriate direction, set a stop loss below or above the 78.6 level.
The simplicity of these methods lies in clear rules, it is difficult to get confused in them, therefore these methods are effective.
A trailing stop is a stop loss that follows the price by a certain percentage, point or dollar amount when the price moves in your direction.
Thanks to the trailing stop, the risk will decrease, protecting your profit and preventing a profitable position from turning negative.
Usually, a trailing stop is set when the price has already moved in the direction we need and in order not to lose profit, we set a trailing stop. But be careful, do not place your stop too close to the price, do not forget about corrections, give the price room to accelerate.
This method is the most used by swing traders.
The essence of the method is that the stop is placed behind the low / high of a preselected day. Also, the stop can be moved if the price shows a new high/low the next day.
This method is not considered the best, but it exists and you should know about it. Be careful when using.
There are many ways to set loss limits, but which one to choose?
As is often the case in trading, you need to choose the method that suits you, your character and your strategy.
Do not forget that an excessive stop-loss setting can lead to premature closing of a position. Frequent repetition of this mistake can lead to the loss of all capital.
The stop loss should not be set at any point you want on the chart, it should be set according to the method and logic of the price movement.
Don’t forget about volatility, which can cause you to lose your position and then turn in the direction you need.
Also, it is not necessary to set the stop loss clearly at the support/resistance level. The price often passes these levels and comes back. Do not forget.
Setting a stop loss on each position is an important rule. This should become your habit. Before you open, you need to know where you will put your stop loss. Do not forget the rules, follow them and you will succeed.