Sometimes it might be challenging to monitor all your open deals, and it’s especially hard to acknowledge that one of your deals may end up closing not in your favour. That’s where stop loss comes in handy - it will do all the work and won’t allow you to lose more than you are ready to lose.
There are no strict rules when it comes to setting your level of stop loss - some traders prefer to place it barely outside the daily price range of an asset, whereas others might set their level much further into the loss territory.
However, there are some strategies you can apply to your trading style and see what works for you better.
Multiple stops
This strategy protects your open deal from slippage - quite an unpleasant surprise for many traders. That’s why some traders prefer to set multiple Stop Loss levels - each of them a bit further from the current price. Even if a sudden price drop slips through your first or even second Stop Loss, the third one will be there to protect your funds.
Reverse
This one demands a bit more analytical approach and usage of support and resistance lines. Once your price reaches a certain point of loss, it closes - only to open a new one in reverse direction. Some brokers don’t provide the option to make it automatic so that this approach might demand your presence and monitoring of your deals.
Trailing Stop
This is one of the best strategies one may use to earn more and lose less. This option allows Stop Loss to be dynamic - if the price goes in the supposed direction, Stop Loss follows it and rises with it. This way, you won’t lose more percents that you are ready to lose, and your chances for a profitable deal rise. The trailing stop is always here to catch your deal from falling, so it’s optimal for mild risk management.
There are a lot more ways to use your Stop Loss option, but those are the main ones traders all around the world use. Maybe you have your own unique strategy while using Stop Loss? Let me know. It would be great to get a new point of view on it!
