Placing your stop loss order requires fine tuning on your part. On the one hand, you don’t want to get too liberal with your stops that you never lock in a profit. On the other hand, you don’t want to set too tight stops that you constantly get bumped out of the market.
Entry and exit for each trade is very important. Your exits must be carefully coordinated with your entries. The topic of setting stop loss exits generally falls under the heading of trading systems. This is a trading skill that you can only learn with experience.
Setting a proper stop loss is going to make a lot of difference in your trading system success or failure. How many stop loss orders you can use in trading? There are a variety of stops that you can incorporate into your trading system. The following sevens are the most valuable stop loss orders:
1. Initial Stop Loss Order:
Whenever you enter a trade, put a stop loss order first. It is the largest loss that you are going to take in the current trade. This stop is identified before you enter the market. This is the first stop set at the very beginning of the trade. The initial stop is also used to calculate your position size.
2. Trailing Stop Loss Order:
Using trailing stop loss orders is a good idea. This stop trails the price action. A trailing stop locks in profits when the price action is reversed. Trailing stop loss orders develop as the market develops. The trailing stop lets you lock in profit as the market moves in your favor.
3. Resistance Stop Loss Order:
Trend is your friend as long as you ride it in the right direction. A resistance stop is placed just under the countertrend pullbacks in a trend. This is a form of a trailing stop used in trends.
4. Three Bar Trailing Stop Loss Order:
Every trend is bound to reverse at some price. Many traders can’t anticipate a trend reversal and lose the unrealized gains when there is a sudden trend reversal. This stop is used in a trend when the market seems to be losing momentum and you anticipate a reversal in trend.
5. One Bar Trailing Stop Loss Order:
Use this stop after three to five bars move strongly in your favor when the prices have reached your profit target zone. This stop is used when there is a breakaway market and you want to lock in profits.
6. Trendline Stop Loss Order:
Use this stop when you are riding an uptrend or a downtrend. You always want to get out when the prices close on the opposite side of the trendline. Use a Trendline Stop placed under the lows in an uptrend or on top of highs in a downtrend.
7. Regression Channel Stop Loss Order:
A regression channel usually represents the width of the trend channel. A regression channel forms a channel between the highs and lows of the trend. Stops are placed on the outside of the lows of the channel on uptrends and outside the highs of the channel in downtrends. Prices should close outside the channel for the stop to be taken.
You always need to put your stop loss orders in accordance with the underlying market conditions. Try to overcome your fear and place your stop loss orders at reasonable places in the market. If you find yourself being stopped out too frequently or if you seem to be getting out of the trend too early then most probably you are trading with a fearful mindset.