A trader already knows stop losses are mandatory. They prevent disastrous loss and allow a trader to walk away and wait or focus on another trade. Even so, some traders still struggle with stop loss positioning. If your stops are too tight, you can get stopped out of a trade, only to watch your target get hit immediately after being wicked out. Conversely, a stop loss that is too loose will cause unnecessary losses and keep you in a trade long after it has been negated.
Gabrielle’s method of placing stop losses for swing trades
- When long, stop loss is placed at lowest wick on the 4 hour trend
- When short, stop loss is placed at highest wick on the 4 hour trend
This is highly effective in the crypto market
ROKU 4 hour breaks bullish above the 50 MA, shows an upcoming Golden cross of 50 and 200 MA. We enter on 12/26 ema support test and place our stop loss at lowest wick on the 4 hour trend. Second entry is when ROKU retests the 50 MA. 4 hour trend stop has now moved up. This is a “loose” stop for swing trades. Don’t forget to calculate your loss ahead of time and determine your percent of capital to be used.
Remember: A stop loss is the price where your trade becomes invalid!
Other Stop Loss Strategies
Average true Range Indicator (ATR)
Use 2-3x the ATR and subtract it from the price of your entry. For a short position, add 2-3x the ATR to your price of entry.
A trend line that has been tested multiple times and adhered to is a great place to utilize a stop loss. Place your stop a few percent or less below the trend line.
Use a 10, 20 or 50 MA as a stop loss level, placing your stop a few percent below.
Place a stop 3-5% below the breakout level.
A common tool for algorithmic traders, stop loss is placed 5-10% below entry.
Keep it simple. Choose one system for your stop loss to avoid confusion- and always use it.