Stop loss is one of the key strategic
benefits of day
trading.
The stop-loss prices
can be easily hunted.
Especially by the sharks
or the big players,
as it is near to the support
or resistance lines.
However, there is no excuse, not to
follow strict risk management,
by following the rules in the game.
The ability to put stop losses is like an
ability to take a lifeline for the day traders.
Intraday volatility might be detrimental to one's
financial well being and it should be followed
with strict price action understanding.
A stop loss is important for various reasons and
it is just not for saving capital. There are some
popular or fairly common ways of understanding
the market. Many traders would want to keep a
stop loss based on the indicators or other similar
conditions. However, it should be remembered
that a lot of other properties should be kept in
mind while determining the right way to work
in the market.
One of the key aspects of risk management
is having the habit of cutting your losses
short and letting the profits run. However,
though it is very simple to understand, it
can be extremely difficult to follow or execute.
Stocks are a good way to make passive
income but there are safer options for passive
While risk-reward ratios play a significant role in
determining the upward moving curve of a
person's trading career. It is also important
to understand how to place the stop loss correctly.
Many traders while working on the derivatives
segment, like future and options, find it
very difficult to follow the rules of placing
the right prices for the stop loss.
There are various ways of putting a stop loss
in the system or on your journal. No matter what,
it needs to be followed strictly for market movements.
Find out key levels of support
and resistance in
the chart.
A market that has been shorted by a
trader should ideally have the stop loss set right
at the brink of the resistance. There is no point in
holding the trade on the wrong side. Betting against
the trend can be difficult to harness profits from under
any kind of market. Of course, if the market is volatile,
there will be times when the resistance gets breached
and even then the market does not sustain. It simply
goes beyond and falls back to the level of profits.
Getting the trend right, even after placing a trade
with the wrong analysis is quite a matter of luck.
One cannot trust their stars daily for this kind
of gambling. Trading after all is treated as a
business in the industry and there are ways
how people make consistent profits. People
follow good habits like logging down the trades
and writing down the mistakes daily. Learning
on a piece of paper can help you in the long run.
Many traders prefer to trade on paper for months
before placing a trade in the market. Working with
real hard-earned capital takes time and confidence.
If one does not possess either, or could not
build enough system logic. It is better to
avoid trading with gut feelings in place.
For a trade on the long side, many would use
the support bases as something that would help
them keep their trades intact. This means that
no matter what happens, the trader always keeps
his base as the stop loss. No matter how much time
the market bounces in this area, the confidence
remains intact. The moment the region is
breached the trade is also exited.
Of course, there are exceptions to this as well,
as many would have observed that the price has
a habit of going beyond the support and resistance
areas and coming back to profit regions. However,
such occurrences are mostly exceptions and many
would not even want to consider them. In trading,
the rules and system of the trader are supreme
when they are lightly followed without flexible
mindsets.
Another way of putting stop loss is based on the
time factor. Important price behaviors may be
observed by any price action trader.
Some traders prefer to base their trades
according to the world clock of the trading
day. One can set a strict watch schedule
and determine what choices are to be made.
The US market open hours and UK market
Open hours can have a significant nudge on
the Forex markets. It is important to consider
price analysis during such key moments.
As one can see important price fluctuations
can be used to decide on whether or not to go
ahead with a trade. The sudden movements in
the market can completely shift the trends in a
matter of a few minutes. This allows one to ride
or leave the trend. Many traders would close
their position basis the clock as there could
be significant exposure to the change of
polarity, beyond a certain timeframe.
For many day traders, another way of
putting stop losses is just following the
indicators. Any crossovers would mean
that the trend is against the previous
analysis. It would eventually mean that
the stop loss is taken and the trade is to
be exited with immediate effect. However,
this may be quite difficult to follow as there
are ways by which an indicator may lag
significantly behind the current market prices.
So, such actions can be only pre-empted.
It is inherently true that most indicators will
show the right trend at the mid stages of an
established trend. So it is just good to follow
that with sincerity. One would never want to
go back in time and change the setting to see
a better exit price for the current trade.
The general human tendency is to be right
at all times. This leads us to some inexplicable
mistakes sometimes. There is no point in
holding a trade longer if it has failed to live
beyond the indicator crossover. Many traders
would feel the urge to change the settings of
the indicator to make it slow or fast. That way,
many traders would want to stay longer in the trade.
It is important to understand the importance of
price action, before even going in that direction
of choosing flexibility over rationality.
The unorthodox way of seeing the market could
bring many new possibilities like the volatility
factor or VIX. It can be followed for exiting trades.
Many traders take this as the rudimentary telltale
sign for understanding whether the market is in
the greed or fear zones. While such ways of seeing
the market may work most times, it is not absolute.
There will be occasional times when a wrong
evaluation of the volatility factor might lead to
significant losses. However, if the volatility
increases in the market there could be
various interpretations for the derivative segments.
Thanks for reading this far,
Many traders consider the global sentiment while
trading a local index. As important support or
resistances are broken in the international market,
a trader adds position or offloads to exit a trade.
While this is a significantly advanced level of analyzing
the market, a day trader may have too much to
handle at all times. Watching too many charts and
making too many decisions at the speed of light could
mean harmful Trading is also about meditating and
being peaceful enough to focus on the actual charts.
The charts where the trade has been taken should
be given the most importance. So, rather than focusing
on everything all at once, it is important to consider the
current market and follow that obediently.
Finding reasons not to close a losing trade is one of
the most common vices that every trader succumbs to.
It might have been observed by a day trader that not
all days are the same, It is important to give up and
exit from a trade when the market is sideways, this
is true mostly for the option buyers who believe in
the trending market while entering a trade. If the market
remains sideways for a long it may reduce the chances
of one's win due to the time decay of the option. So,
on the days, when it is realized that the market is not
trending, a different strategy might be applied. This
strategy is a smart way of evaluating the market where
greed is overpowered by rationality and one can
function well. It is wise to preserve capital for a day
when there is an actual opportunity to make money.
Preserving capital and restraining trade is
challenging for any day trader.
Learn more about the margin trading
facility and the leverage trading options.
Margin Trading, Deep OTM & ITM
Day traders should occasionally read
books about developing habits and
strengthening their mindsets too.
For Habit Creation and stacking
So, one of the easiest ways to take stop loss
is perhaps to determine what percentage of
capital would you want to lose on a trade.
If one has determined this percentage of money
well in advance, then any significant move in the
market will not be able to shake the confidence.
One would stay in the trade, no matter what.
Until the trading capital is diminished by the set
percentage by the trader, the trader continues
to enjoy the beauties of the newfound trend.
This is a good way to control emotions and
control how the market noises could
prevent one from profiting from the market.
It is debatable whether one should put the stop
loss in the system or just keep a note of it.
To protect from the sudden upcycle and
downcycles of the market, it is quite important
to have the stop losses set right on the trading
instead of having to place an order.
Successful day traders are opportunistic and
they trade with the system and rules in place.
This article or any comments or opinions are
not meant to be taken as financial advice.
The content is meant for educational purposes
only. Please do your due diligence before
investing or trading.
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