[转帖] [center]Establishing stop loss levels [/center] Establishing an appropriate stop loss level is the most difficult part of trading and there are several techniques to establish these levels. On one hand, if the stop is too "tight", the probability of being stopped out is very high even if the position is in the "right" direction. On the other hand, losing positions should not be kept too long. So, how should one gauge whether the stop is too "tight" or too "loose" ? Several elements must first be taken into consideration : - Time frame ;; the trader who is working from 1 hour charts will, of course, have to place his / her stops much looser than the trader working off of 15 minute charts. However, the trader working off of 1 hour charts will necessarily have a bigger objective to compensate and justify this risk. - Market volatility ;; Though we do not know when the market is going to become very volatile or very calm, volatility (or lack there of it) is like trends ?it stays for a while (or is absent for a while). When the market is generally volatile, stops must be placed looser than when the market is generally calm. - Support and resistance levels;; the trader working from 15 minute charts should use support and resistance levels to help guide him / her with stop levels. If, for example, the trader is long from 0.9745 and there is good support at 0.9725, it would probably not be a good idea to place the stop any higher than 0.9720 (support level and a bit of room for "noise"). - Previous high / low on a larger time frame ;; The trader working from 15 minute charts may use 1 hour bars / candles to help guide him / her to place the stop level. For example, for long positions established by signals coming from 15 minute charts, the trader mar switch to 1 hour charts and look for a preceding candle with a lower low. The low of that candle could be used as a reference point for the stop level. - Find the "pivot points" ;; The "pivot point" is the point at which the market turns from bull to bear or from bear to bull. Though this may seem rather subjective, there are often fairly clear horizontal levels at which the market changes direction. These levels often differ from one time frame to another and one may even find several different "pivot points" in the same time frame. The key is to differentiate the "minor support / resistance" levels from the real "pivot points". This is simply a question of observation, practice and experience卼here is no "magic" or mathematical formula for "pivot points". Finally, the "pivot point may not necessarily be a single level, but may be composed of a zone or band but is usually a fairly tight band (depending on the time frame of course). Once the pivot point is established, the trader may want to refer to it as the stop level in the same manner that one would use support and resistance levels (as explained above). - Finally, one the appropriate stop is established, one must decide if they can actually afford to take the loss in the event that the stop is hit. If the established stop loss would "severely damage" the account, the trade must not be entered. The solution may be either, work on smaller time frames, stand aside until market volatility calms down or simply fund the account adequately。 [ Last edited by goldenmean on 2005-6-13 at 12:12 ]