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How to set a proper Stoploss and avoid being Stopped out (Technical Analysis : 03)

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aretailtrader
@aretailtrader
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What is a Stoploss?

  • A stoploss is an order that you place with your entry or after your entry so that you can limit your losses in any investment.

  • Basically, Stoploss is like insurance that will always save you from blowing up your capital.

Why you should put a Stoploss?

  • If in a scenario you haven't put a stoploss and your investment goes down by 50%, your investment's price has to move 100% to come to your cost price.
  • A 100% price move when the stock or crypto is already falling is extremely difficult to recover.
  • So it would be better to cut the losses short and take an opportunity somewhere else.

So where should you place a stop loss so that you don't get stopped frequently?

  • You have to put a stoploss where it is not obvious. For eg., A normal trader would put a stoploss at the nearest swing loss but you should put a stoploss between the second swing and the nearest swing. (Refer to the image below)
  • This will help to avoid stoploss hunting which is very common these days.

  • One thing to note is we have to modify our target to match our stoploss.

Dynamic Resistance

  • While Using moving Average we can use Moving Averages as our Stoploss.
  • In the above image as we can see it is respecting 50 EMA.
  • We will put our Stoploss at 200 EMA so that we don't get stopped.
  • As you can see in the image if we would have put our stoploss at 50 EMA our Stoploss would have been hit and then the rally began.
  • So our stoploss at 200 EMA saved us from this.

Pattern Stoploss

  • We have been told to put stop loss in the right shoulder while following the inverse head & shoulders Pattern (See Image Above)

  • In the above image we can see how big Players has eaten the stop losses for the swift move.
  • So we should have put our stoploss between right shoulder and head.
  • As there is no logic to wait for the price to come till head and bear a bigger loss and cut our losses earlier but away from market makers.

GOODLUCK TRADING!!!

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