Determining Where to Set Your Stop-Loss

Day trading stops

The Best Stop Loss Strategy For Momentum Traders

In day trading you're going to have bad days where everything seems to go wrong. Successful traders know how to handle such daysand know when it's time to quit--they implement a daily stop loss on themselves.

Finance Magnates Telegram Channel Today I decided to touch more on an educational feature rather than provide a certain market outlook. Back testing historical data, creating algorithms to use and much more. I know. I am one of these traders. Entry signals are very important but just as important if not more is trade management.

There's always another day, and it's best to preserve capital when things aren't going well, so you have it for when they are. The day trading daily stop loss is the amount of money you allow yourself to lose in a day before you call it quits for that day.

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This is different than a stop loss orderwhich controls the risk of an individual trade. The daily stop loss forces you to realize that today likely just isn't your day, and preserving your capital for another day is the best option.

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Once losses start to mount it can become very tough to stay focused, and not get into "revenge trading" mode, which typically results in even bigger losses. Depending on the method chosen for determining your daily stop loss it may fluctuate daily.

day trading stops

If you are new to trading and don't have a track record, your daily stop will need to be based on losing trades in a row, or a percentage loss. Using both of these methods is ideal.

day trading stops

This is a good method because it makes sure that any losing day can be easily recouped by a positive day. If you are a relatively consistent trader, this added buffer gives you more room to make back some money during the day, without being forced to quit trading. When you hit your established limit, stop trading.

day trading stops

No matter which daily stop method you choose, reaching your daily stop level shouldn't be a common occurrence. Reaching it once or twice or month is manageable, but if you are day trading stops it more often than that then your method may need refining, risk needs to reduced on each trade, or current market conditions are not favorable for your strategy.

The Bottom Line Trading can be thought of as a game of probability. This means every trader will invariably be wrong sometimes.

The daily stop loss serves to protect you from taking a massive loss on a single day, which could potentially ruin an entire month worth of trading, or worse yet, significantly depletes your trading account. These daily stop loss guidelines apply whether you're forex day trading, stock day trading, or day trading other markets. The Balance does not provide investment advice.

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Day trading is considered speculative with high risks of loss of principal. This should not be considered a strategy for retirement, savings, etc.

Please speak with a financial planner regarding investment strategies day trading stops those life events.