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Chapter 35, Part II. Ways to Place Stop-Loss Orders.

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Apr 29, 2012.

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  1. Administrator

    Administrator Just Administrator :-)

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    Part II. Ways to Place Stop-Loss Orders. [​IMG]

    Commander in Pips: As I’ve promised now we’re starting to talk about different ways to place stops. And we will start from most simple one that is called cash/money/equity stop-loss.

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    Cash (money or equity) stop-loss order


    Commander in Pips: This is the simplest way to place stop, and as you probably guessed – the most reckless. In fact, it depends on risk threshold and money management system of each particular trader. The trader just determines maximum loss level in every trade and place stops accordingly. Those who feel comfortable with greater risk level could use 10% as stop loss value in every trade, while wise traders usually use not greater than 2% in each trade. Depending on the position size a trader calculates the price level where he or she should place stop. For example, if you have 10,000 USD with assets and trade 1 standard lot of EUR/USD, choose risk level as 5% in every trade, then your stop will be 50 pips away from your entry point.

    Pipruit: Hm, why have you said that this is a reckless way to place stops? This approach agrees with money management and we’ve said that money management is a must… So what’s wrong with this approach?
    Commander in Pips: This is reckless, since this way of stop placement goes against with major stop loss condition that we’ve specified in the beginning of this chapter – stop loss level should be absolute invalidation point of your trading context. But here we see that this is not the case, since you do not know in advance – will this level that matched to your allowable loss invalidation point or not. This could happen just occasionally. And we already know that all occasional stuff strongly hurts trading business and turns it into gambling. For example, some famous traders such as Joe DiNapoli calls this stop placement technique as “Banzai” – this is a call of Japanese kamikazes suicide pilots, absolutely blind action, without any thought - so as equity stop loss.


     
    #1 Administrator, Apr 29, 2012
    Lasted edited by : Oct 10, 2016
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