Place stop-loss orders at prominent price levels
Another way to determine the level of the stop-loss order is to place it just above or below prominent price levels such as resistance or support, depending on the trading direction (long or short).
This type of stop determination is mainly used by swing traders or investors who trade in somewhat larger time frames. But this method can also be used for short-term trading. However, one should always keep an eye on the "big picture" of the next larger time frame in order not to be caught on the wrong foot.
Example of Trading range
In this example, the price moved in a trading range for some time. When the price returned to the lower part of the range, one could have risked a long trade. In this case, the stop loss could have been set below the lowest price that was traded in this trading range. The stop would have been about 10 points away from the entry price. The take-profit level at the upper end of the trading range was about 25 points away from the entry price. Thus, one would have risked 10 points in order to gain 25 points.
This would correspond to a CRV of 2.5 which is a very good value. As you can see, the trade at exnessbroker.net would have gone well. If one had used a trailing stop with a distance of 10 pips, for example, it would have been possible to make a profit of considerably more than the 25 pips envisaged at the beginning. But again, this trading strategy only makes sense if the expected profit is at least as large as the possible loss. Otherwise you will make losses in the long run.
Can a stop loss be moved later?
Absolutely: Yes! But only in one direction. The purpose of a stop-loss order is to protect your capital. If you now imagine the following scenario: You have identified an opportunity and calculated your profit potential and risk for this trade. Now you have entered the market and unfortunately the trade does not develop in your direction. In the hope that the trade will still develop in your favour, you move it a little further away from the entry price.
Does that make sense? Of course not! The trading setup you have thought about is ruined anyway when your position is closed out. If you had a CRV of 1.0 before, you will probably have a CRV of 0.5 or worse with an offset stop. Because you have moved the stop, you can suddenly lose more money than you gain on this trade.
Even if this trade goes well again, these are exactly the trades you do not want, because they will inevitably lead to losses in the long run. Therefore, stops should only be moved in the direction of the trade, for example to secure profits or to take the risk out of the trade.
For example, if you bought a share for 30 euros and the share rises to 36 euros, then you have already made a 20% profit, but unfortunately only on paper. If the share now falls to 25 Euros, you have not only lost your paper profit, but also your own capital. Therefore, in this case you should tighten your stop to at least the entry price of 30 euros in order to take the risk out of the trade and at least not make any more losses.
