Minggu, 18 November 2007

Setting Stop Loss as Managing Risk

Most expert trader already know that managing risk is the most important task in their trading. Why is that? Because they want to make money. In all trading loss is something that you can’t refuse. Soon or later you will force to take loss. You can’t deny it. So many of good trader will plan about when and how much they take that loss by setting stop loss in most of every trading.

When and how much to take loss need a good plan as good as taking profit. In simple word if you taking more loss than your profit, you will not making money. So make sure that your trading system is making money, more profit than loss that taken. Usually a good trader will set their stop loss before they get into their trading. If they don’t know where to set a stop loss, usually they not get into the market. Also it’s important to know if your stop loss has a small probability to touch by market price. So you should set stop loss on specific price that only touch by market if the condition change extremly. If the market condition has no change or change a little, your stop loss will not get touch.

There’s two simple method to setting a stop loss. First, setting stop loss using technical indicator in example: Psar. If you set Psar indicator on your trading chart, there will be dot upper or below market price. That’s a Psar value. Psar value usually same with the highest or lowest price of the market in a certain periods then it will follow the market price directions. The best value of setting stop loss is the first Psar value. Usually that price will not get touch by market except; your position against the market trend direction, your stop loss value is too close with market price compared to daily range, or the market change direction extremly because of news or other event.

Second way to set a stop loss is by pivot point. By calculating support and resistance of market price you can set stop loss at the support or resistance value depend on market direction. As I’m not familiar with it so I can’t explained well and tell you exactly how to use it.

Some of other people set their stop loss by counting percentage of their margin or equity. Usually they set their stoploss after counting if the market touch their stoploss then they loss 1-10% of their margin or equity.

Now it’s depend on your trading system to choose how to set your stop loss. But the most important is set your stop loss before you enter the market. Plan how much loss that you accept to take, from 1-10% from your margin or trading equity. Then set your unit transaction so if your stop loss taken by the market you only loss about percentage of your margin or equity depend on your plan. Never move your stop loss except move it to break even point or positif profit if the market touch your stop loss.

Good luck on your trading and get success. Never stop learning!

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