How to Put Stop Loss Correctly


Stop loss is one of the key strategic

benefits of day


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.

Line chart of stock market, richdaada logo and How to put stop loss correctly title

Stocks are a good way to make passive

income but there are safer options for passive

income too.

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


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. 

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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.

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Day traders should occasionally read

books about developing habits and

strengthening their mindsets too.

For Habit Creation and stacking

For Wealth Creation

For a change in perspectives

For Psychology

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

terminal. Exit automatically,

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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