Setting Stops in Context

So there you have it, our comprehensive guide on establishing stop losses.

Let's go through all you need to know about stop losses now.

Find a broker who will let you trade position sizes that are appropriate for your funds and risk tolerance.

In this course, we use the phrase “predetermined” a lot since you should ALWAYS know when to exit before you start a position.

If you're already in a losing transaction, you won't be able to make a rational decision to abandon it. That might be disastrous for your bank account!

Set your stops according to the current market conditions, framework, or trading strategy.

Set your exit levels based on how much you're willing to lose, not how much you're willing to gain.

The market has no idea how much money you have or how much money you're ready to risk. To be honest, it doesn't seem to mind.

First, identify the stop levels that reveal your trade is incorrect, and then adjust your position size accordingly.

It's worth reiterating.

To close a deal, use limit orders. Only individuals with a large number of trades in their journal should employ mental stops.

Even so, limit orders are the way to go: they're emotionally agnostic and may be executed automatically while you're relaxing on the beach sipping virgin margaritas.

Your stop should only be moved in the direction of your profit aim. Trailing stops are great, but spreading stops are terrible!

Setting stop losses, like everything else in trading, is both a science and an art.

Markets are dynamic, volatility is, well, volatile, and what works today may not work tomorrow.

You'll be one step closer to being a professional risk manager if you consistently practise the proper technique to establish stops, document, and analyse your thinking processes and trade outcomes in your notebook.