Stop loss orders are the most important risk and loss minimizing tool a trader has so far. Stop loss trading strategy is perhaps the most used strategy in trading, but only a few traders know the art of setting them. Once you learn this art you will soon be joined the list of ‘Successful Traders’. Here are some tips for setting stop losses when trading.
- Any stop loss order will consider a variety of situations, the volatility of market, the volatility of the product you are trading, trading account size, the margin you owned, long-term market direction and your trading style.
- Use tight stop losses when you are trading with large account size. Use moderately relaxed stop loss when your account is so small.
- If you are a day trader, it is better to set tight stop losses, if you are an investor think of expanded stop loss orders.
- Use relaxed stop losses when you are certain about the bullish trend of the market and the product trading. Else tight ones.
- Use relaxed stops when the product you are trading shows reasonably high swings within the day. Otherwise your stop losses may be executed, even if you are not willing.
- Use tight stops when you are trading with heavy margin.
Remember many brokers limit traders from using very tight stop loss orders, and the successful setting of stop loss requires many trial-and-error practices. If you are new to trading it is better to practice stop losses using a paper trading account.
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