Stop-loss is an important tool in your career. If you can use stop-loss right, you may save your money from going into the market and have some profit. People do not have the idea on how to set the stop-loss at an effective price level or when they should use it. This article is going to tell you when this tool should be used by traders to save the capital from losses. This is a very useful tool that can remotely monitor and execute your trade orders if you are out of reach of your trading software or your trade is going to be a loss for you.
Some of you might say you will close the trade manually when things go against you. But this market is so volatile, you can’t make the right decision at the right time. Due to this reason, the experienced traders always place stops at the beginning. Mental stops don’t work at all. However, if you gain enough experience in the retail trading profession, you might be able to use the mental stops and to minimize your risk. But being a new investor you should never follow this technique.
There are many ways you can follow to set your stop loss. But you need to understand technical analysis prior to the use of stop loss. Technical analysis will give you the perfect entry point. But this doesn’t mean you will not be losing any trades. Losing trades will always be a part of your trading career. Start using the spread betting demo accounts and try to develop a simple way to deal with your losing trades. Never trade the market with aggressions or double your lot size to recover your loss. You have to stay in the market to make a profit. If you blow your account there is no way you can make a profit.
The stop-loss should not be too close to the opening price
One thing you need to remember when you are setting your stop-loss that it should not be too close to your opening price. Many people make this mistake and their trades are closed even at the natural volatility. There are many trends that are changing all the time and there is some level of volatility always existing in this market. If your open your trades and the set the stop-loss near to opening level, it will close at the earliest change of the trend. If you set it too far away, the volatility can clean out your account.
When to use it?
There is no specific time to use the stop-losses. They come with your trading software and you can use them whenever you want. Traders are advised to use stop-losses when they are trading in high volatile trends or they are in commodity trading. The trends change fast and you may not have the time to close your trades if the price goes down against your account. Setting a stop-loss can save you from danger. However, professional traders advise novice trader to grow this habit of using stop-losses from the beginning of their career. This stop-loss is not a magic tool that will perfect your strategy whenever you use it. It takes time to master the position and when to close the trades if you have not set the stop-loss by yourself.
You can also use stop-loss if you are not sure of the market trend or you are out of reach of your trading platform. People who are flying out of the country may miss closing their trades manually. They can have stop-loss do the work for them. If you want to let your profit run when you have made your initial profit, you can set a new stop-loss to save your profit in the progress. This is a safe way to make money using the stop-losses.