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Chapter 35, Part IV. Other Thoughts on Stop-Loss Orders. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    2. Do not place stop-loss order too far. Again, here you have to remember that this is an invalidation point. If you place stop far beyond it, then you will hold an absolutely losing position after it will pass through your crucial point, when your entry context will be absolutely broken by the market. What to do for that? Second negative moment is that you will be able to trade much smaller position size, third moment is that it’s will be very difficult to enter the trade at all, since risk/reward ratio will be either too small or the target objective will be unrealistic.

    3. Do not place stop-loss based on your position size. In fact, position size depends on stop-loss level, but not vice versa. If you determine stop-loss level, based on your position size, then it does not relate with market behavior. You have to use the technical picture, volatility or any other issues that have direct link with real market movements and breathe. When you have estimated where you have to place stop-loss by one of these technical or statistical issues – then adjust your position so, that it matches to your money management limitations. Remember that – area of stop loss-order estimation and money management are first, position size is second;

    4. Place stop-loss orders beyond levels but not before them.
    We’ve already discussed it previously. Since stop-loss order is protection of your capital, it has to be protected by some technical stuff and very often they are different types of support or resistance levels. You want that your stop-order will be safe, so placing it above resistance and below support is a good idea. These are levels the market has to struggle to move through, hence your stop-order will be as troops protected by a wall. If you will be General of the Army – would you place your troops in front of the wall during enemy attack? I guess not. So, the same is with a stop-loss order. If the market will break the level, well, then definitely it will proceed through free space in the direction of breakout. From that perspective exiting the trade by stop-loss to prevent more losses is logical.
    #1 Sive Morten, Dec 28, 2013
    Lasted edited by : Oct 12, 2016
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