Stop Loss Placing for day trading : Best practice
- Stop Loss is the pre-determined price at which you are required to exit a trade if the stock price goes against you by limiting the loss which otherwise may make a huge loss and making a dent in the capital amount or may even wipe out the capital itself.
- Placing of the stop-loss
- Make sure you place a stop-loss immediately after each entry. It is always advisable to place a stop loss to not more than 2% of the capital amount.
- Place a stop loss just below the Support level if you are going long on the trade and above the resistance level if you are short on the trade.
Levels of support and resistances S3, S2, S1, Pivot, R1, R2, R3,
- For a buy trade, the previous resistance or support or pivot levels act as a stop loss price and vice versa for a short trade. Example if the trade is executed between R1 and R2 for long R1 acts as a stop loss and for short trade R2 acts as stop-loss,
- If the gap between the supports is huge calculate the amount of loss that is bearable and place stop loss accordingly.
- In some cases, the Average traded price should be used as a stop-loss price.
- Make sure that the stop loss is placed at a distance so that it is not hit quite often with the market noise.
- Those following the moving averages can place their stop-loss order just below the average for a buy call and just above the average for the short call.
- Select a good strategy where you are not required to lose heavily with strict stop losses. see that when you enter a trade you must be confident about the entry that there is little or no chance of hitting a stop loss.
- Losses are inevitable in trading but losing heavily is in your hands. Overtrading also leads to losses because of reduced stop loss gaps, which gets taken out in the market noise or waves. stops should be comfortably placed.
