Stop Loss Setting

Stop loss setting is a trading tool that can help investors control risks and protect funds when the market fluctuates. The principle of stop loss setting is to pre-set a price level when opening a position. When the market price touches or exceeds this level, the system will automatically close the position to avoid further losses. Stop loss settings can be divided into two types: fixed stop loss and trailing stop loss.

Fixed stop loss

Fixed stop loss refers to determining a fixed price level as the stop loss point when opening a position. No matter how the market changes, this stop loss point will not change. The advantage of fixed stop loss is that it is simple and clear, and can avoid emotional interference and human error. The disadvantage of a fixed stop loss is that it may be triggered prematurely and miss subsequent profit opportunities.

Trailing stop

Trailing stop refers to dynamically adjusting the position of the stop loss point according to changes in market price to keep it at a certain distance from the market price. The advantage of trailing stop loss is that it allows profits to run while locking in profits in a timely manner. The disadvantage of trailing stop loss is that it may be triggered by small fluctuations in the market and cannot capture the general trend.

How to set stop loss

Setting a stop loss requires consideration of many factors, such as trading strategy, risk tolerance, market environment, etc. There is no one right answer, but there are some general principles and techniques to follow.

According to technical analysis

Technical analysis is a method of predicting future price changes by analyzing historical price movements. There are some important concepts in technical analysis, such as support levels, pressure levels, trend lines, moving averages, etc. These can be used as the basis for setting stop loss points. For example, if you are long an asset, you can place your stop loss below the nearest support level; if you are short an asset, you can place your stop loss above the nearest resistance level. This can avoid being stopped early due to normal market fluctuations.

According to the risk-benefit ratio

The risk-benefit ratio refers to the ratio of your expected return to the risk you take. Generally speaking, a reasonable risk-benefit ratio should be greater than 1:1, that is, your expected returns should be greater than the risks you take. According to this principle, you can calculate your stop loss point based on your target price and entry price. For example, if you are long an asset, your entry price is 100 yuan, your target price is 120 yuan, and you want to maintain a risk-return ratio of 2:1, then you can set the stop loss point at 95 yuan, In this way, your risk is 5 yuan, and your profit is 20 yuan.

According to money management

Fund management refers to the reasonable allocation and control of your trading funds to avoid irreparable losses due to over-trading or excessive risk-taking. An important rule in money management is that each transaction should not exceed a certain proportion of your total capital, such as 2% or 5%. This protects your principal and gives you enough flexibility to respond to market changes. According to this rule, you can calculate your stop loss based on the ratio of your total capital to each trade. For example, if your total capital is 10,000 yuan, and each transaction does not exceed 5%, which is 500 yuan, then you can set the stop loss point within 500 yuan of the entry price.

Conclusion

Stop loss setting is an effective trading tool that can help investors control risks and protect funds. Stop loss settings need to be determined based on factors such as technical analysis, risk-to-return ratio, and money management. The stop loss setting is not a fixed number, but needs to be flexibly adjusted according to market conditions and personal circumstances. Hope this article can be helpful to you.