How to Place stop loss for short-term trading?

The very first question traders should ask themselves before enter a trade is "Where

is my stop loss point?" Find your stop loss and evaluate your risk. If the stop is too far away from the entry point or it is further from the entry than the target point, do not enter the trade!

There are many different approaches to set stop loss. Seek for one that most suit for your trading style and your capital, then stick with it. In this article we will discuss about some options for placing stop loss points in short-term trading.

1) When you swing trade, place stop loss few ticks under the low of the entry's day

2) Do not risk more than two percent of your trading capital.

For example let's say if you account total is $10,000. Two percent is equal to $200. So, if you buy 100 shares of XYZ stock at &42, you can lose only two points from this trade. Hence, the stop loss for your trade is $40.

With this approach, if you buy more shares the stop level will move closer to entry point while it will move further from entry point if you buy fewer shares.

3) Some traders place their stop point according to the cost of purchased stock.

For example, if you buy XYZ at $40, you may place stop at $38 which is 5 percent of your trading cost, if you place the stop at 10 percent it means you place the stop at $36.

4) Also use "trailing stop". The trailing stop is the stop loss that moves along behind the price.

For example, if you enter a trade at $40 and place initial stop loss at $36. A while later, if the price rise to $45, you may raise your stop level to $40 to get rid of losing chances. Then if the price continues to rise to $50, you may move your stop to $45 to lock your profit.

One proper option for placing trailing stop is to place the trailing stop few ticks below the closest support (if you go long) level.

The most important thing about stops is once you enter a trade, you have to place a stop immediately. Do not enter a trade without proper stop loss.

Do not enter a trade if it is too risky, place a tight stop to minimize your risk. Use trailing stop to lock your profits.

How to Place stop loss for short-term trading?

By: Taro Hideyoshi

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