We often get single-minded and get too focused on ways to make money. In doing so, we tend to forget to be cautious with the risks and losses. The result is great losses in trade. But this can be avoided.
- Devote equal focus on how to not lose money
- Study prior big losses or drawdowns & focus on ways to avoid a repeat
- Don’t keep making the same costly mistakes
- Avoid overtrading
- Eliminate bad trading habits
- Manage open risk
Apart from the above basic ways to stop losses we have some very definite methodology to avoid stress and losses in trading.
The methods are given below:
1) Stop losses
2) Trade in the direction of the trend
3) Manage position size
4) Don’t hold through earnings
5) Consider volatility
6) Don’t trade illiquid markets
In this article, we will talk about Stop losses at a basic level for the beginners, only. In the following articles, other factors will be discussed.
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Stop losses are extremely important tools for traders.
It is not possible for a trader to continuously monitor multiple deals on a variety of shares, commodities, currencies, and indices.
Some volatile instruments can experience huge price variations in a matter of hours or minutes.
Stop-loss allows the buyer or seller to automatically place an order to buy/sell an instrument once it’s price reaches the desired specific level at which the buyer or seller is intending to buy or sell.
While Stop loss provides help to a trader to protect his balance, it can also be taken into account that stop-loss limits potential profits by effectively closing a deal too soon.
Setting a rate to buy or sell is the trickiest part that a trader should be aware of.
But as Stop Loss gives the trader the decision-making ability to decide how much he is willing to risk, he can conveniently mitigate the risks involved.