We, at Forex.Academy, try to help novice, and not so novice, traders the best ways to trade in this Forex jungle. Many novice traders put their focus on entries, thinking that to be profitable, you need to be right. Right?
– Wrong! in his book “Trade your way to your financial freedom,” Van K. Tharp proposed a random entry system as an example to show that trade management is more important than entries. The stop-loss setting is a key part of trade management, so let’s have a look at how to optimize them.
Stop-loss placement is the part of the system that decides when the current trade setting is no longer valid, and the best curse is to cut losses. Of course, there are lots of ways to do that, and we at forex.academy have published several articles regarding stop-loss definition. This is a kind of entry point for you to have it easy.
Usually, new technical traders trust stops placed below easily seen supports or above resistance levels. If all participants see them, why would this be a good method? Surely not. Therefore, we suggested a better solution: ATR-Based stops.
An improved method for the ATR Stops is the Kase-Dev Stops. Kese stated that a trade is a bet on a continuation of a trend. The ideal trend is a straight line, but the market has noise. The aim of a well-placed stop-loss order is to set it away from the noise of the market.
Shyam, while writing the Forex course, teaches his learners that Fibonacci levels are not only meant for entries but serve quite well to define Fibonacci-based stop-loss levels.
Arthur Simmons, another of our excellent writers, explains how you can set stop-loss orders using point and figure charts.
Finally, if you are statistically oriented, you may be interested in the Maximum Adverse Excursion (MAE) stops. The concept of Maximum Adverse Execution was introduced by John Sweeney. The idea is simple: If your entry system has merit, successful trades behave differently than losing trades. The MAE level defines the point beyond which it is likely the current trade would belong to the losers set, and thus, it is the optimal level to place the stop-loss.
I hope this gives you nice ideas for your stop-loss orders and helps you avoid being a victim of the market makers and institutional hawks.
Good trading!
