Trading is a business where you have the potential to earn a great deal of money but at the same time losing money is a distinct and very real possibility. Therefore, in order to limit any potential loss it is strongly advised to place a stop loss as soon as you enter a trade.
A stop loss is simply a price in the market where, if your trade goes against and touches this given price, you are stopped out and therefore your risk is limited to the number of points between your entry and your stop loss.
In the UK all financial spread bet companies will allow you to use a stop loss, so if you are placing your trades via phone don’t forgot to place a stop loss at the same time you place your trade as if you fail to do so you could be in for a nasty shock if your trade goes against you.Nearly all financial spread bet companies now have trading platforms that allow you to place a stop loss position automatically.
When you open a trade where you place your stop loss will depend on your trading strategy but it is wise not to place it too close in order to give your trade ‘breathing space’ and a chance to develop. There is nothing worse financially or psychologically than to see your trade stopped out only then to see it shoot off in the direction you had intended. If you feel that you are risking too much money by allowing more leeway with your stop loss position it is always more sensible and more profitable to reduce your £ per point size rather than keep your stop too tight.
The stop loss can also be used to manage your trade. As the trade moves into profit you can move the stop loss accordingly and gradually lock in profit.
To learn more about using a stop loss and all aspects of trading I strongly recommend the Ian Williams trading course.
Please note that I receive no monies or commission whatsoever for recommending this course.
To learn more about using a stop loss and all aspects of trading I strongly recommend the Ian Williams trading course.
Please note that I receive no monies or commission whatsoever for recommending this course.