Better stop-loss placement is crucial for Forex traders who want to manage risk in the best way possible. The points where you are placing stop-loss tell a lot about your trading skill. Professional traders in Hong Kong develop a reliable sense to recognize a perfect position in a trade to place the stop-loss. In contrast, newcomers and relatively inexperienced investors fail to point out such a position.

Better Stop-loss Placement

Knowing at which point your trade is going to stop will allow you to free your head of unnecessary fear of loss. Thus, you will feel feasibility in engaging with riskier trades.

This article presents some tools which are renowned for addressing better stop-loss placement points.

1.      Fibonacci Levels

You can also use Fibonacci levels as support/resistance. That’s because stop-loss and support/resistance stop positioning systems used to share the same method. When you find a favorable trade entry and figure out a plausible 1-2 pattern for the Fibonacci tool, you can take the retracement levels to use as stop-loss levels.

Fibonacci tools are being used for many years in identifying retracement positions. Though their popularity is relatively high among the people, it also shows some limitations. The most cardinal among them is the rarity of 1-2 sequence. This sequence is difficult to find as it doesn’t occur frequently. You are very unlikely to see the sequence within ranges and at the beginning of a trend. Besides, a Fibonacci tool is not always right. To use the Fibonacci tool, you need have a robust demo platform. Get it from Saxo and you can test your skills and master the use of this tool without risking any real money.

2.      Price Patterns & Formations

This is the most popular and the most used strategy to find an effective stop-loss point. If you use pin bars for your business, you usually position your stop at the peak or bottom of the high. If you are a Head & Shoulder trader, you enter the trade on a neckline gap. Then you set your stop-loss on the opposite side of the line. If you enter a business on a pullback, you will likely put the stop-loss above or below the high or low.

Though this strategy is among the most practiced ones, people nowadays want to avoid it. It’s because spotting such a stop-loss placement is comparatively easy.

3.      ATR

Reckoning the Forex market’s extremely volatile nature, an investor may refer to the ATR stop-loss approach as a dynamic one. A higher ATR indicates a highly volatile condition. The price fluctuates and moves more at such times. If you find yourself in the middle of such a situation, you should not dare to set a narrow stop-loss. Widen it as much as possible.

You can also widen your take-profit since the market is swinging more than usual. It will balance your risk to reward ratio as you have reset both your stop-loss and take-profit.

You have to go through the opposite procedure if the ATR indicates a low value.

4.      Moving Ranges

If the price remains in the trend, it pulls away from the moving average because of the movement’s acceleration. In the case of a slow trend or reverse trend, the price reverts to the moving average.

For the orthodox moving averages, you can place the stops outside the averages. It’s a general rule that you should never place stop-loss in the middle of a moving average. You must put a bit of space between the stop-loss and the moving average.

Before using the moving average to position a stop, you must learn about this average first.

Conclusion

You cannot commence a trade without setting a stop-loss point for it. To learn about better stop-loss placement, you can learn from a professional. Nothing will teach you more effectively than using practical examples.