Stop Loss


Prerequisites for this discussion:

               Consolidation

                Support & Resistance

                Head Room


The Stop Loss discussion will be short because if you understand Head Room the Stop Loss calculation is the exact same type of calculation only in the opposite direction.   Proper Stop Loss calculation will help us minimize risk and at the same time give our trade the room it needs to ultimately reach our profit target.

If you choose to small of of Stop Loss it will get hit before the profit target is hit.    If you choose to large of a Stop Loss then you are taking unnecessary risk if the trade goes bad.    Knowing what the Stop Loss should be will also allow us to determine if we want to take the trade or not.   Why take a trade if the potential Stop loss is too large?   Wait for another day and a better trade with a lower Stop Loss potential.

Stop Loss is measured from the current price back to the previous point of Consolidation, Support or Resistance.   If you are BUYing a pair then look down and see how far the price could fall to the next previous Support point.    If you are SELLing the pair then look up and see how far the price could rise before the next Resistance point is reached.

From our Head Room discussion the Yellow line could represent the potential Stop Loss for each of our Trades knowing that it is set at a Reversal Point from several weeks earlier.

Stop Loss like Head Room is a subjective calculation.  Practice in your DEMO account on pairs you are not familiar with to get a knowledge of how much Stop Loss each pair needs and where the Chart is showing you the point at which it should be set.





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