How to use Stop loss and Trailing Stop loss
Using stop loss is the most important thing in trading. It is not the entry or the target that should have trader's primary focus.
There are 2 general tips where the first is always use stops. First One is, If trader do not have a stop loss in and the trade goes against them might end up losing everything as they freeze and just watch the trade goes further and further against them until they cannot take more and exit the position. By having a hard stop loss in they are avoiding them self from ending.
Second One is never moves trader’s stop further away from the entry. If traders do, traders can end up losing their entire account while waiting for the stock to bounce. When traders have placed their stop loss the only way they are allowed to move the stop loss is with the trade as it goes their way. Never increase the stop loss, only decrease it.
There Are Different Stop loss Used In Trading
Volatility Stop loss - Uses Average True Range (ATR) or a similar calculation to determine where trader should place their stop loss. Does price move beyond the Average True Range then trader’s stop loss is hit. This makes sense as normally a move beyond ATR signals a trend change in the market.
Last Pivot High/Low - This is what traders also call swing high or low. This is another great place to set their stop loss or trailing stop loss. These pivot points shows where buyers or sellers last came in and if that level is break is can signal a trend change.
X Bars High/Low - A very easy to follow but yet useful trailing stop loss is the X bars high/low. If traders are short their trailing stop loss would be placed above the X bar high and if traders were long their trailing stop loss would below X bar low. This trailing stop loss is especially popular among scalpers as they need a trailing stop that moves just as fast as price.
Point or Percent - If traders are trading one particular stock or future and investor trade the same strategy again and again then traders quickly get an idea what stock/future normally moves and by knowing that traders can place a stop loss based on point or percent. A very simply stop loss and trailing stop loss but none the less effective.
Moving Average - Using a Moving Average as a stop loss is not always the best choice as it is lagging. If price moves very fast then it can actually be even more lagging. However there are some benefits to using a Moving Average as stop loss or trailing stop loss and that is it sometimes leaves enough for traders to trail their trade.
Reverse Of Entry Signal - This is a slight alternative stop loss or trailing stop loss but there are some traders using it. The stop loss is trigger if the opposite of trader’s entry signal occurs. For example if the trade is a crossover of Stochastic to the downside then trader’s exit would be a cross over to the upside.