Instructions

Have a trade plan. Trade plans or strategies should include an action step regarding stop losses. Whether a trader is a position trader, day trader or scalper will influence how the stop loss aspect of his trade plan is determined.

Enter trades that match your risk management strategy. No matter how confident you are about the direction of a potential trade, if the cost of entering that trade does not match your risk management strategy, pass on the trade. For example, if your stop loss for a trade is -130 pips away from your entry and your risk management strategy says your stop loss order should not exceed -50 pips, pass on the trade or look for a less risky entry that matches your predetermined tolerance for risk. Ignoring your stop loss plan means an exposure to a higher level of risk and should that loss happen, the result could be devastating to the account and to the trader’s accountability for that account.

Tips & Warnings

Resources

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