Page 9 - Module 6 Costly mistakes

Module 6 – How to avoid costly trading mistakes

Let’s discuss a few key factors on the advantages of using Stop Loss orders.

A tool to determine position size
After you have identified the Stop Loss price level for your trade, you can measure the distance
between your entry and the Stop Loss to determine the potential loss and then figure out the
position size. Without a stop loss, it’s impossible to determine the accurate position size.

Stop Loss orders defines the worst-case scenario
The Stop Loss order ensure that your trade will be closed when price reaches the level (although
events might occur where your stop isn’t filled). Thus, with your Stop Loss order and the correct
position size you can pre-determine how much you are willing to lose on any trade. Only risk what
you can lose comfortably and there will be no surprises anymore with a Stop Loss in place.

Protect your profits
Once a trade has moved in your favour, you can move your Stop Loss behind current price, to secure
unrealized profits.

11. maximise losses with successful stop loss placement

Trader normally don’t have a clear defined plan or concept when it comes to placing Stop Loss
orders, and randomly place them.

Where do I place my Stop Loss Order?
Identify the price level for your Stop Loss level first. Most traders just think about how big their
position should be and then try to find a Stop Loss price. It’s essential that you stick to the following
process:

After identifying your Stop Loss level, look for the price to place your Take Profit order at. After
knowing where you place your orders, determine the Reward:Risk Ratio. If the Reward:Risk Ratio
does not match your criteria, skip the trade and do not try to modify your orders to achieve a better
Reward:Risk Ratio.

Use reasonable price levels
The price level of your stop loss order is the price where your trade idea is no longer valid. It is
completely acceptable and normal if price goes against you on your trade, but at some point, a price
movement against your trade makes your trade idea invalid. It is important to use reasonable price

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