Traders are used to stop loss because to protect their capital. If market is going against the position, stop loss required to save the capital.
I am getting many mails from students, how to place the stop loss and where set up stop loss and target.
I explained as of my trading experience stop loss placement and also take profit is mostly required before going to trade set up.
Let us going to today topic is stop loss placement in any one of market forex, commodity, indices and more. How much you are taken risk per trade in dollar.
You calculate how much you afford for trade and what is your reward as per your defined risk. I suggest to you ,always trade set up risk reward ratio more than 1:1.
Generally the many traders are take place stop loss as their emotion base and take place stop loss too close to their entry point, because trade with big position size.I suggest to you. Do not place stop loss in greed or emotion.
So put stop loss at logical level , where the market can move freely and room to breathe freely. Set up the trade and free away from trade .
Let the market may be hit your predetermined stop loss which you placed as you entered the trade at logically. We can exit trade by manually also, because whilst the price action has formed a signal and market is going against to your position, You feel emotional and market may be hit your stop loss, because the market is moving against your position. Margin call because you didn’t use a stop and the market moved so far against your position that your broker automatically closed your trade.
Let us I am going to explain how and where you can take place stop loss and target during forex live trading in different method. It is working out and trade with logical stop loss placement by using my price action forex trading strategy and signal mention in my course.
The most logical and safest place to put your stop loss on a pin bar setup is just beyond the high or low of the pin bar tail.
So,in up trend market the stop loss in lower of pin bar tail and in a downtrend the stop loss would be just above the tail of the pin bar.
when I say above tail that can mean about 1 to 10 pips above the high of the pin bar tail as well in uptrend also below the pin bar tail 1 to 10 pips.
As I discussed before in Inside bar strategy in price action and candlestick pattern course. Here we have topic of stop loss placement in inside bar trading strategy. Most obvious logical and safe place put stop loss at mother bar high or low. Let’s see below diagram,
For a counter-trend trade setup, we want to place our stop just beyond the high or low made by the setup that signals a potential trend change. Look at below the image; we can see a downtrend was in place when we got a large bullish pin bar reversal signal. Naturally, we would want to place our stop loss just below the tail of that pin bar to make the market show us that we were wrong about a bottom being in place. This is the safest and most logical stop placement for this type of bottom picking’ price action trade setup.
We often see high-probability price action setups forming at the boundary of a trading range. In situations like these, we always want to place our stop loss just above the trading range boundary or the high or low of the setup being traded. In this picture Reversal pin bar and bearish engulf candlestick signal rejected at range bound of resistance level.
When a trending market pulls back or retraces to a level within the trend, we usually have two options. One is that we can place the stop loss just above the high or low of the pattern.or we can use the level and place our stop just beyond the level. We can see an example of this in the chart below with the fakey trading strategy protruding up past the resistance level in the downtrend. The most logical places for the stop would be just above the false-break high or just above the resistance level.
Often, in a trending market, we will see the market pause and consolidate in a sideways manner after the trend makes a strong move. These consolidation periods typically give rise to large breakouts in the direction of the trend, and these breakout trades can be very lucrative sometimes. There are basically two options for stop placement on a breakout trade with the trend. As we can see in the chart below, you can place your stop loss near the 50% level of the consolidation range or on the other side of the price action setup; in the example below it was a pin bar. The logic behind placing your stop loss near the 50% level of the consolidation range is that if the market comes all the way back down to that point the breakout is probably not very strong and likely to fail. This stop placement gives you a tighter stop distance which increases the potential risk reward on the trade.
So, let’s say we have a price action trading strategy that’s very close to key level in the market. Ordinarily, the ideal stop placement for the price action setup is just above the high of the setup’s tail or the low of the setup’s tail, as we discussed above. However, since the price action setup tail high or low is very close to a key level in the market, logic would dictate that we make our stop loss a little bit larger and place it just beyond that key level, rather than at the high or low of the setup’s tail. This way, we make the market violate that key level before stopping us out, thus showing us that market sentiment has changed and that we should perhaps be looking for trades in the other direction. This is how you place your stops according to the market structure and logic, rather than from emotions like greed or fear.
You must be set stop loss and profit target before going to trade set up with your predefined plan and trading journal with money management. I mean to say here,Placing profit targets and exiting trades is perhaps the most technically and emotionally difficult aspect of trading. The trick is to exit a trade when you’re up a respectable profit, rather than waiting for the market to come crashing back against you and exiting out of fear.
The difficulty of this is that it’s human nature to not want to exit a trade when it’s up a nice profit and moving in your favor, because it feels like the trade will continue on in your favor and so you don’t’ want to exit at that point.So I suggest to you,while you are trading always use the trading plan and journal, trick to profit target more than risk to reward ratio 1:2 be good.
The main thing to place the profit target is simple,My point of view trade with worth opportunity or holy grail strategy and same or more than risk to rewards 1:2,1:3 & etc.
I often getting many mails regarding placing stop loss and set up profit target, what is your profit target and how place profit target? what are some of the things I consider when deciding where to place my profit target? It’s really pretty simple, I am basically analyzing the overall market conditions and structure, things like support and resistance levels, major turning points in the market, bar highs and lows, etc. I try to determine if there is some key level that would make a logical profit target, or if there is some key level obstructing my trade’s path to making a decent profit.
In the image below, we can see a pin bar setup which formed after the market began moving higher after a reversal of its previous downtrend. The stop loss was placed just below the low of the pin bar. So, at that point we have what we call 1R, or simply the dollar amount we have at risk from our entry level to the stop loss level. We can then take this 1R amount (our risk) and extended it out to find multiples of it that we can use as profit targets.
Now, let’s take this a step further and put everything we’ve learned in today’s lesson together. We are going to analyze a trade setup and discuss the stop placement on the trade, the target placement and the risk reward potential.
In the chart below, we can see an obvious pin bar reversal setup formed near a key market resistance level, indicating that a move lower was a strong possibility. The first thing I did was determine where best to place my stop loss. In this case, I elected to place it just above the pin bar high since I determined that I would no longer want to be short if the market moves up to that level.
Next, I noticed that there’s a key support a little ways down below my entry, but since the key support didn’t come in until almost 1.5 times my risk and beyond that there was no key support until much further below, I decided the trade was worth taking. Then continued market moving lower to make 3R. Now, not every trade is going to work out this well, but I am trying to show you how to properly place your stop loss, calculate what your 1R risk amount is and then find the potential reward multiples of that risk whilst considering the overall surrounding market structure
When we are trying to figure out if a potential price action trade setup is worth taking, Do not go through emotionally, We do this by first calculating the risk and then the reward and then we take a step back and objectively view the trading setup in the context of the market structure and decide whether or not the market has a real shot at hitting our desired target.
Our number first concern as traders is capital preservation.. Professional traders do not waste their trading capital, they use it only when the risk reward profile of a trade setup makes sense and is logical
A trader is really a business person, and each trade is a business deal. Think about Mr Mukesh Ambani doing a big business deal to buy a new hotel development. He is carefully weighing the risk and the reward from the deal and deciding if it’s worth taking or not. As a trader, that’s what we do too; we first consider the risk on the trade and then we consider the potential reward, how we can obtain the reward, and if it’s realistically possible to obtain it given the surrounding market structure, and then we make our final decision about the trade. Whether you have a $100 account or a $100,000 account, the process of weighing the potential risk vs. the potential reward on a trade is exactly the same, and that also goes for stop and target placement; it’s the same no matter how big or small account you have. .
There are different entry possibilities that I didn’t get into here which can affect the potential risk reward of a particular trade setup. Today’s lesson was just meant as a general guide of how to logically and effectively place stop losses and targets on select price action trade setups, I discuss different entry scenarios and more trade setups in my trading course and Gold members’ community.