The fixed-risk stop-loss is where you plan beforehand how much you can afford to drop and place a stop-loss in the market corresponding to that amount.
This is one of the bad ways to exit a trade. Too often, traders reject to test the effectiveness of stop-loss stages and end up using any arbitrary number. Trader might place a stop five percent away from the market, but why five percent, why not 4.9% or 5.1%?
The big issue with the fixed-risk stop-loss is that it does not mirror the dynamics of the market and is not related to the factor for placing the trade in the primary place. The complexity is that stocks fluctuate broadly. They generally take out stops then undo back the other way, finish up more-or-less where they were before. This kind of stop is likely on top reversed as a bad case situation stop for security against really rare events.
Many traders asks us, how much large is target or stop loss in our calls. This is the reason people makes loss in the market. If we plan how much stop loss or target should be then what will technical’s decide? But extremely few traders understand this and thus we all know very few traders makes profit in the market. In fact lots of reasons has to be considered while making exit or entry.
Reverse entry rule
One idea of exiting a trade and one that makes an amazing deal of sense is to easily exit when your entry rules have reversed.
For instance, if you bought a stock because it just reached a new 50 day high, you should probably sell when it hits a fresh 50 day low, if not before.
Likewise, if you bought a stock because you calculated it was affordable, you should sell it once you have calculated it is no longer affordable.
Price action stops
Line of trend stops are best for brokers who look at bare price work. Since price work examples are extremely open it makes sure to have a fairly open stop-loss stage too.
Power up-trends spec successive higher lows and higher highs and that offers an amazing chance to draw rising trend line linking the lows. Having a stop a pretty below this line can be a best way to manually lock in profit and keep danger tight.
Similarly, resistance levels and support levels, once drawn on a chart, can be used to place stops in areas that give the top risk/reward.
Trailing stops track a stock price as it moves lower or higher, thereby locking in revenues and decreasing danger. In the case of long trade, a trailing stop can be linked to each new high and this will move up as the stock price climbs. This can be designated in points or percentage amount.
For instance, a 35% trailing stop permits a stock to keep moving higher and higher, but the moment it losses 35% from its peak high, closed the trade. Trailing stops are helpful for trend followers as they abide by the golden law of letting winners win.
At McxNiftyTips we uses stop loss trailing in every and each trade so that traders gets the highest advantages and lowest loss.
The Chandelier stop is basically a trailing stop which uses the ATR expect of using a point value or arbitrary percentage.
In other words, instead of placing a stop-loss 20 points or 20% below the market, you place the stop whatever the Average True Range is. Traders generally use an ATR (14) and a multiplier so if the Average Trade Range (14) is 30 and the multiplier is five, the trailing stop will be located 30*5 values away.
The big advantage of the Chandelier stop is that it adjusts to volatility, permitting volatile stocks more room than less volatile stocks. It is another best exit for trend followers.
We will discuss about remaining 5 ways in next week, till then enjoy trading.
Tags : Mcx tips, nifty tips, stop loss , techniques, tricks , intraday trading, positional trading
You can read Part 2 at http://www.mcxniftytips.com/ten-best-ways-to-quit-a-trade-part-2/