Tips for trading strategy in STOP LOSS

[Mr. Magkaisa]

        -       In this topic, we will talk about the stop-loss strategy that can be used by any trader, whether a newbie or a long-time trader. You will definitely get more knowledge from it. In fact, I personally used some of the stop-loss strategy that we will talk about; it may or may not be effective for others. Because we have different approaches to the market.  STOP LOSS is a fundamental concept in trading that is used in any volatile market, such as cryptocurrency, forex, and stocks.

This is the pre-set order that we place in the exchange to sell assets when it reaches a certain price level. And the primary goal of the stop loss is to limit our losses in the trade.  For example, I bought a token worth 100$ each because my expectation is that it will increase in the near future, but in case my assumption is wrong, I will set SL at a price of 90$ so that I will only lose 10$. instead of scraping all my balance fund, and at least I only lost 10%, not 90%. Now, why is SL important in trading? Always, that is because it plays a big role in our risk management or it serves as our safety net for excessive losses in the event of unfavorable market movement.  Because if we don't do anything, Stop Loss is a tendency. We might hold our losing position and hope that things will turn around and maybe even win, but in reality it won't happen. Therefore, SL (stop loss) helps to limit our losses, reduce emotional trading, and improve planning. Because before we enter trading, we already have an expectation that we can win or lose in the activity we will do.  At least in this way, it can give a realistic expectation that it won't be too painful for us or we won't feel it too much anymore. It seems we already know the possibilities.

1. Percentage-based stop loss

This is the simplest or most widely used stop-loss strategy; these are also the methods that are taught in textbooks, like you only need to risk 2% per trade, so if you have read trading books, you already know that. This is part of our risk management as traders.

How it functions:

Decide on the maximum proportion of your money that you are willing to risk on a trade in order to determine the percentage.

Generally speaking, this ranges from 1% to 3%, although it might change depending on your trading style and risk tolerance.
Determine the stop loss price: After deciding on a percentage, figure out the price at which the stop loss will be activated. You accomplish this by deducting the percentage from the cost of admission.
As an illustration

Cost of admission: $100
Percentage at risk: 2%
$100 - (2% of $100) = $98 is the stop loss price.
Your loss will be limited to 2% if the price falls to $98 or below, at which point the stop loss order will be triggered, instantly terminating the trade.

The advantages of stop losses based on percentages:

Risk management: Assists in limiting possible losses and shields against large setbacks.
Objectivity: Makes decisions less emotionally driven by offering a clear exit strategy based on a preset percentage.
Consistency:Adaptable to various asset classes and trading strategies.

Taking into account:

Market volatility: In times of extreme volatility, it's possible that a stop loss won't always be implemented at the precise price you select.
False triggers:Transient price changes may set off stop losses, resulting in needless losses.
Lost opportunities: If the market moves considerably in your favor, a stop loss might keep you from making further gains.


2. Moving average stop loss

Personally, I don't use this method, but there are other traders who are more comfortable using it, so normally, they use 50 or 200 MA, depending on trader preference, because it serves as dynamic support and resistance.  It's just a simple thing to remember here: when you're in a short position, the SL you put is above the moving average, and when you're in a long position, your stop loss is below the MA(moving average).

Moving average stop loss advantages:

Dynamic adjustment: This lowers the possibility of false triggers by dynamically adjusting the stop loss to market conditions.
Trend following: By keeping up with the market's movement, the stop loss may make room for bigger gains.
Risk management: Promotes profit-taking while assisting in the prevention of possible losses.


3. ATR (average true range)stop loss

Many traders also use this strategy so they can determine the stop loss level. For those who code the bot, this is what they often use and do to measure the distance or depth of the stop loss, depending on the volatility. This means that these indicators measure market volatility. When the ATR value is high, it indicates high volatility. And when the ATR value is low, it means the volatility is also low.  So ATR becomes flexible when using this strategy. So, I suggest that it is better to use it for traders who love trading bots.

How Functions:

- Determine the ATR value for a certain time period (e.g., 14 days) by doing an ATR calculation.
- Place First Stop Loss: Place the first stop loss below the market price.

Modify the stop loss: An increasing ATR means that the stop loss is moved further away from the current price. An increasing ATR indicates greater volatility.

Falling ATR: When the ATR goes down, it signals less volatility, and the stop loss is moved in closer proximity to the current price.

ATR Stop Loss Benefits:

Dynamic Adjustment: This minimizes the chance of being stopped out by brief price swings by automatically adjusting the stop loss to shifting market circumstances.
Effective risk management: allows for profit-taking while also assisting in the control of possible losses.
Based on Market Volatility: The ATR stop loss is more adaptable to shifting market conditions because it is based on market volatility.

4. Support and resistance stop loss

This is the typical one where traders place a stop loss below support and above the resistance level. The idea about stopping loss of swing high and below swing low also came from here. The swing point is the support and resistance level. Normally, when we take a long position in a support area, our SL becomes below it, and on the contrary, when we take a SL in resistance, it is at the top.

Encouragement and Opposition Stop Loss Advantages:

-  Technical Analysis Makes well-informed recommendations about where to place stops based on technical analysis.
-  By placing stop loss orders at important price points, risk management helps to contain any losses.
-  Integration with many trading techniques is possible.

Considering
1. Support and resistance levels can change over time and are not always the same. These are known as dynamic levels.
2. Phasic Breakouts: The market can momentarily breach a level of support or resistance before pulling back.
3. Conditions of the Market: The performance of stop loss and support strategies can change based on the state of the market.

As an example:

Support Level: A stop loss could be set at or slightly below $50, for example, if the price of the security has regularly found support there.
Resistance Level: A stop loss could be positioned just above the $70 mark, for example, if the price of a security had previously experienced resistance there.

5. Time-Based Stop Loss

This is what we will exit the trade in a certain period, regardless of a price movement. I also do this from time to time when it's really necessary and it's really wrong to trade knowing that it will only lead to a big loss. So, on a case-to-case basis, we do this even if we already have a stop loss. Sometimes there is a chance that we will enter the trade when the position has been open for a long time and the SL or TP has not yet been cut. Meaning, when nothing changes for a long time, we need to close the position.

How to use it:

Establish Timeframe: Choose the precise amount of time (hours, days, weeks, etc.) that you wish to devote to the role.
Place Order: Start trading and establish a time-based stop loss.
Automatic Closure: Regardless of whether the position is profitable or losing money, it will automatically close after the designated amount of time has elapsed.

Time-Based Stop Loss's Advantages

-  Risk management limits exposure to a trade for a predetermined amount of time, which helps to control potential losses.
-  Enforces discipline by making traders leave positions, even if they have strong emotional ties to them.
-  Simplicity: Simple to apply and comprehend.

Disclaimer: this is not a financial advice instead its for educational purposes only.

Good day everyone

[OcTradism]

Stop-Loss order: one of best weapons in trading.

There is another order type, Stop-Limit order that is helpful and in market crash, it is more helpful than Stop-Loss order to help you avoid too big slippage.

Stop-Limit Order.
Stop-Loss vs. Stop-Limit Order: What's the Difference?

[Wind_FURY]

I believe from the post of OP, the best stop-loss strategy would be the ATR-based stop-loss. It takes into account an assets average volatility taken from "X days" - it could be 7, 14, 21, 28 or any length you want. But two weeks is probably enough to get a good average.

For how much to risk based on an asset's volatility, the user could divide one or two percent of his/her capital by ithr asset's ATR to get the bid size, and subtract the ATR value from the entry price as the stop-loss.

¯\_(ツ)_/¯

[Nrcewker]

I have another opinion regarding stop loss. If you are trading futures and choose good trading pairs, then I would advise you not to put any stop loss. Instead, set “take profit” at a certain percentage. For example, you can take the trading pair of BTC/USDT and can always open a LONG trade whenever you find BTC under 55k. As we know, Bitcoin doesn’t fall very low, and always more people will buy it to increase the price again. Hence, in this manner, you can really make a good profit. You just have to make sure that you have good balance for the trade and the leverage is in control.

[crwth]

Thank you for sharing your post OP. I believe it is crucial to manage your risk in trading and maintain a disciplined, emotionless approach. This is especially important in the cryptocurrency market, where volatility can quickly turn a winning trade into a loss.

I remember a saying that it's best to keep money rather than lose money. If you translate int into trading, limiting your losses will be the best approach in the long run rather than just doing YOLO per trade.

Do percentage-based risks; using 5% trading capital and then 5% stop loss is excellent.

[GreatArkansas]

4. Support and resistance stop loss
5. Time-Based Stop Loss

I commonly use these kinds of stop losses, because somehow it is the one that decides if my analysis becomes invalid for example, if I am using the strategy of support and resistance then it's the best thing to use, but most of the time I intend to adjust the stop loss, not putting the order exactly on the support/resistance to avoid stop loss hunts.

For the time-based stop loss, if my target price or stop loss is not triggered, sometimes I intend to close my position immediately, so this is more manual, so even my current position is already up or down (most of the time it's a small percentage of down/up), I just close it immediately if it's already too long and doesn't go with my plan.

[betswift]

Thank you for sharing your post OP. I believe it is crucial to manage your risk in trading and maintain a disciplined, emotionless approach. This is especially important in the cryptocurrency market, where volatility can quickly turn a winning trade into a loss.

I remember a saying that it's best to keep money rather than lose money. If you translate int into trading, limiting your losses will be the best approach in the long run rather than just doing YOLO per trade.

Do percentage-based risks; using 5% trading capital and then 5% stop loss is excellent.

I fully support you.
It's important to trade responsibly in order to gain something out of it overall, not to slowly drain your portfolio dry.

[Lakai01]

For the time-based stop loss, if my target price or stop loss is not triggered, sometimes I intend to close my position immediately, so this is more manual, so even my current position is already up or down (most of the time it's a small percentage of down/up), I just close it immediately if it's already too long and doesn't go with my plan.

May I ask why do you use time-based stop losses at all? I guess to free up the invested capital for other, more promising trades?

Otherwise, time-based stop losses hardly make any sense purely from a market movement perspective, you only make life more difficult for yourself as a trader if you have to take an additional component (i.e. time in this case) into account in your trades

For me, time only plays a role in my DCA purchases, but I use it purely for building up my HODL positions (BTC, ETH, ...).

[EarnOnVictor]

Thank you for this article, it's very important and I hope the new and struggling traders can make use of it. The stop loss is a crucial tool in trading, without it, the trader is likened to a driver driving a car without a brake, the car may crash at any time due to disregard for safety.

However, among the 5 points you raised, I use 3 of them and the 4th and 5th points can be merged together as the use of indicator strategies to place the stop loss. In addition, one may use the candlestick high and low for this and even the pattern on the trading chart, they are the most effective ones I know.

But I can't use the time-based approach, it's not professional to me as the market condition is not predictable. Another one is the fixed stop loss, but you did not mention it.

[Wind_FURY]

I have another opinion regarding stop loss. If you are trading futures and choose good trading pairs, then I would advise you not to put any stop loss.

That's actually, VERY bad advise there ser. Because if you're not going to put ANY stop-loss, then merely hold spot, NOT futures.

Plus are you suggesting not to use leverage because you're advising not to use any stop-loss? Because THAT would be an inefficient way to use capital for trading futures.

Instead, set “take profit” at a certain percentage. For example, you can take the trading pair of BTC/USDT and can always open a LONG trade whenever you find BTC under 55k. As we know, Bitcoin doesn’t fall very low, and always more people will buy it to increase the price again. Hence, in this manner, you can really make a good profit. You just have to make sure that you have good balance for the trade and the leverage is in control.

Why not merely long term HODL Bitcoin? I'm very confident that would bring OP more profit than that trading "scheme".

[slaman29]

I have another opinion regarding stop loss. If you are trading futures and choose good trading pairs, then I would advise you not to put any stop loss.

That's actually, VERY bad advise there ser. Because if you're not going to put ANY stop-loss, then merely hold spot, NOT futures.

Have to agree. Any trader that says don't use stop loss is a bad trader. It is simply irresponsible to teach or advice that. Like you said, the only situation where there's no SL required is holding. Then again, true holding doesn't even need an open order

What is a 'good trading pair' anyway? So good that there will not be flash crashes? Futures is where leverage people go to play, no SL is suicide.

[GreatArkansas]

For the time-based stop loss, if my target price or stop loss is not triggered, sometimes I intend to close my position immediately, so this is more manual, so even my current position is already up or down (most of the time it's a small percentage of down/up), I just close it immediately if it's already too long and doesn't go with my plan.

May I ask why do you use time-based stop losses at all? I guess to free up the invested capital for other, more promising trades?
(...)

It's more on the analysis becomes invalid, like for example, it's already days and the price is not going to your plan, like it just sideways, no dump and no pump. So, your stop loss below your entry price is not also being triggered and your price target is also not being triggered or is still far, that's why you will end up closing the position and waiting for another opportunity.
To free up the invested capital for others is not really my problem because I always have capital left on my balance, I only allocate a small percentage per position.

[Lakai01]

[...]
To free up the invested capital for others is not really my problem because I always have capital left on my balance, I only allocate a small percentage per position.

Thanks for the explanation!

In my trades I am rarely tied up for several hours, so I trade on the lower time frames (30m, 1h, 2h, ...), so stagnating price movements are not as important as if the price does not change for days and you hope for a better entry opportunity.

But in this situation, of course, I understand why you exit the trade prematurely.

[OcTradism]

I believe from the post of OP, the best stop-loss strategy would be the ATR-based stop-loss. It takes into account an assets average volatility taken from "X days" - it could be 7, 14, 21, 28 or any length you want. But two weeks is probably enough to get a good average.

For how much to risk based on an asset's volatility, the user could divide one or two percent of his/her capital by ithr asset's ATR to get the bid size, and subtract the ATR value from the entry price as the stop-loss.

I usually use ATR (Average True Range) indicator to make my calculation on next market change in $. It is not perfect and can not help me to know will market move up or down, but this can help me to calculate, or you can consider it as estimate, if a market moves next with a big change, how much it will move up or fall down. I can calculate it based on past changes of prices with ATR changes. Not perfect but helpful and usable.

I did not use ATR-based stop-loss, honestly.

It's more on the analysis becomes invalid, like for example, it's already days and the price is not going to your plan, like it just sideways, no dump and no pump. So, your stop loss below your entry price is not also being triggered and your price target is also not being triggered or is still far, that's why you will end up closing the position and waiting for another opportunity.
To free up the invested capital for others is not really my problem because I always have capital left on my balance, I only allocate a small percentage per position.

By giving this advice, I see you are a very experienced trader, and I agree with your advice too.

A trading position is opened because of specific conditions when you open it and these conditions only exist within a limited time. So if you can not get a profit with it, you must close that position when the time budget runs out. Let it opens in different positions, than original ones, is very risky.

[Wind_FURY]

I have another opinion regarding stop loss. If you are trading futures and choose good trading pairs, then I would advise you not to put any stop loss.

That's actually, VERY bad advise there ser. Because if you're not going to put ANY stop-loss, then merely hold spot, NOT futures.
 

Have to agree. Any trader that says don't use stop loss is a bad trader. It is simply irresponsible to teach or advice that. Like you said, the only situation where there's no SL required is holding. Then again, true holding doesn't even need an open order

Plus having an open orders will have fees. You don't need to pay the exchanges merely for holding. There's also safety and security risks for holding your capital in those exchanges. They should be paying YOU for giving them your trust and taking such risks.

What is a 'good trading pair' anyway? So good that there will not be flash crashes? Futures is where leverage people go to play, no SL is suicide.

It's where 90% of people learn, the hard way, that they're actually gambling.

¯\_(ツ)_/¯

[shinratensei_]

my strategy is to stop loss at support + small percentage for compensation and move the SL to entry when the price mark is already good enough for it to hardly fall.

I find it the best since having floating loss below support is not worth it to hold because it means it has higher chance of going deeper to touch another support.

but it's still 50:50 you know, even having SL in support doesn't mean the market won't touch it and then bounce back after few minutes making our SL harmful to our asset and rather useless.

I have another opinion regarding stop loss. If you are trading futures and choose good trading pairs, then I would advise you not to put any stop loss. Instead, set “take profit” at a certain percentage. For example, you can take the trading pair of BTC/USDT and can always open a LONG trade whenever you find BTC under 55k. As we know, Bitcoin doesn’t fall very low, and always more people will buy it to increase the price again. Hence, in this manner, you can really make a good profit. You just have to make sure that you have good balance for the trade and the leverage is in control.

this manner of trading require good buying price more preferably at the dip, but I wouldn't recommend not putting SL, when market crashes, your margin account will be emptied.

[Wind_FURY]

my strategy is to stop loss at support + small percentage for compensation and move the SL to entry when the price mark is already good enough for it to hardly fall.

I find it the best since having floating loss below support is not worth it to hold because it means it has higher chance of going deeper to touch another support.

It's definitely better to make a small mistake with taking a small loss if the trade didn't go as expected, than punishing yourself into holding the position with a bigger loss while waiting for the asset to recover. Your position will either get liquidated, OR you will take the bigger loss because you want the "punishment" to stop. Hahaha.

but it's still 50:50 you know, even having SL in support doesn't mean the market won't touch it and then bounce back after few minutes making our SL harmful to our asset and rather useless.

You should merely follow your own rules and trade accordingly to avoid making bigger "mistakes". Preserving capital should be your first priority.

[fikrett]

You should merely follow your own rules and trade accordingly to avoid making bigger "mistakes". Preserving capital should be your first priority.

You are right. Afterward, it's essential to make it bigger, but if there are no funds or capital to try strategies out, there won't be a possibility for doing so. It's essential to stay responsible and true to yourself regarding different situations where you are tempted into something that may cause bad consequences in the future.

[Barikui1]

I have another opinion regarding stop loss. If you are trading futures and choose good trading pairs, then I would advise you not to put any stop loss.

That's actually, VERY bad advise there ser. Because if you're not going to put ANY stop-loss, then merely hold spot, NOT futures.

Have to agree. Any trader that says don't use stop loss is a bad trader. It is simply irresponsible to teach or advice that. Like you said, the only situation where there's no SL required is holding. Then again, true holding doesn't even need an open order

What is a 'good trading pair' anyway? So good that there will not be flash crashes? Futures is where leverage people go to play, no SL is suicide.

Well you are actually right on this bro, not using stop loss is actually not ideal if you want to manage your risk properly, though their are so many traders that I knew of that trade without stop loss, but one thing I Know off that they usually do is that, they trade first of all calculate their loss before their profit, like trading with an amount they can afford to lose, so that if things doesn't go their way, they are very much certain that their loss wouldn't affect them that much.

 So  in essence of what am trying to say is that using stop loss is very much good, and it's one of the best way to manage your risk properly in trading, but their are some other ways of managing risk in trading besides using stop loss.

[gunhell16]

I have another opinion regarding stop loss. If you are trading futures and choose good trading pairs, then I would advise you not to put any stop loss.

That's actually, VERY bad advise there ser. Because if you're not going to put ANY stop-loss, then merely hold spot, NOT futures.

Have to agree. Any trader that says don't use stop loss is a bad trader. It is simply irresponsible to teach or advice that. Like you said, the only situation where there's no SL required is holding. Then again, true holding doesn't even need an open order

What is a 'good trading pair' anyway? So good that there will not be flash crashes? Futures is where leverage people go to play, no SL is suicide.

Well you are actually right on this bro, not using stop loss is actually not ideal if you want to manage your risk properly, though their are so many traders that I knew of that trade without stop loss, but one thing I Know off that they usually do is that, they trade first of all calculate their loss before their profit, like trading with an amount they can afford to lose, so that if things doesn't go their way, they are very much certain that their loss wouldn't affect them that much.

 So  in essence of what am trying to say is that using stop loss is very much good, and it's one of the best way to manage your risk properly in trading, but their are some other ways of managing risk in trading besides using stop loss.

The stop loss is really a big help to us traders because it teaches us to practice ourselves in preventing a big loss in the trading activity that we will do in the exchange. Through this, we can really limit the loss in case the analysis we made on the chart of a platform exchange is wrong.

So SL plays a big role in our traders; honestly speaking, all those with deep knowledge in trading will understand this, and they will not just put aside SL when they have done trading activity in the exchange.