Where to Set the Stop Loss (so you don’t get Stopped Out…)

Where to Set the Stop Loss (so you don’t get Stopped Out…)

Where to Set the Stop Loss (so you don’t get Stopped Out…) 300 169 Minimalist Trading – Best Trading Indicators for TradingView

Trading without a Stop Loss is like driving a car with no brakes: something bad will ultimately happen.

Instead, when you set the Stop Loss, you are asking your broker to close the trade if the price moves against your direction to a certain degree.

Essentially, you will accept a small (calibrated) loss in order to avoid a potentially devastating huge loss.

But once you understand that the Stop Loss is essential for long-term profitability, you need to decide where to set it.

Because if you set it too strict, you will get stopped out and you will lose money unnecessarily.

If instead, you are too generous, you will significantly decrease the long-term overall returns.

Luckily, you can understand where to set the Stop Loss very easily.

Most of the time, the price structure will help you a lot.

Additionally, there are Trading Indicators, like the Levels and Zones, that dramatically ease the task.

In fact, these indicators will clearly indicate to you where to place the Stop Loss order.

In today’s live trade discussed on the TradingView chart below, we were saved by the Stop Loss.

How did it save our trade?

Because we set the Stop Loss level correctly, even if the price initially moved against our direction, we were not stopped out.

And eventually, the price moved all the way down to the Take Profit level, closing a very profitable trade.

Trade setup – 19 Feb 2020

See how the Stop Loss saved this trade Setup 1

We can clearly identify a simple short setup, in fact:

    1. There is a divergence between the price, which is moving sideways, and the RSI Exhaustion, which is falling
    2. The RSI Exhaustion is bullish exhausted (colored in green)
    3. We have a confirmed top (displayed by the Bottoms Tops Signal)

Moreover, the price is just below a major resistance level identified by the Levels and Zones indicator.

This should put significant downward pressure.

We set the Stop Loss, higher than the highest price level in this sideways movement.

Then we set the Take Profit all the way down to where the major support is.

We set the Take Profit so low because we know from past experience that the price likes to test the major levels identified by the Levels and Zones multiple times.

So, if we expect the price to move lower, it is very likely that it will reach at least that major support.

Trade update – 19 Feb 2020

See how the Stop Loss saved this trade Setup 2

The price moved sideways and then tried to break the resistance to the upside.

It looks like that we’ve been saved by the stop loss that we carefully set by making the price action analysis.

Now, it seems like the attempt is over and the price should move lower because, in the end, we just got an even better short setup.

Trade update – 19 Feb 2020

See how the Stop Loss saved this trade Setup 3

The resistance has been retested and now the price is moving a bit lower.

In general, by considering the price action and reading our indicators, the outlook is extremely bearish.

Trade closed – 19 Feb 2020

See how the Stop Loss saved this trade Setup 4

It was evident that the price would have eventually moved lower and it actually did extremely impulsively.

Good for us, since we were able to close another winning trade.

After entering into the trade the price moved into our Stop Loss area but eventually moved down.

It’s amazing to see how being able to set the Stop Loss correctly saved this trade and we ultimately made a more than 3x profit.

What’s your experience with Stop Loss levels?

Do you know where to place Stop Loss correctly or do you sometimes get stopped out unnecessarily?

Feel free to share your experiences with fellow traders by adding your comment on the YouTube video above!