Strategies For Reducing Risk with Alessio Rastani

1. leadingtrader.com Strategies For Reducing Riskwith Alessio Rastani The Science of Using A Stop-Loss

2. This presentation is neither a solicitation nor an offer to Buy/Sell stocks, futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this webinar. The past performance of any trading system or methodology is not necessarily indicative of future results.

3. leadingtrader.com Strategies For Reducing Riskwith Alessio Rastani The Science of Using A Stop-Loss

4. leadingtrader.com The Agenda • Understanding a stop-loss order • My top 3 techniques for placing a stop: • (i) simple (ii) advanced • A key indicator to watch before you place a trade • Ideal places to place a stop • Where You should never place your stop • Best and Worst Times To Trade

5. “You Can Never Go Broke Taking A Profit…” ~ Wall Street Saying

7. leadingtrader.com

8. leadingtrader.com SELL How Most People Trade BUY Price

9. Use Stop Loss OrdersTo Control Risk Unlimited Profit Limited loss 1 2 Sell order Sell order Sell order Buy Sell order leadingtrader.com

10. leadingtrader.com How Most People Trade (wrong way) You can be wrong and still make money • Win 9 times, and lose once • Win $100 x 9 = $900 • Lose $1000 • Net: - $100

11. leadingtrader.com How Professionals Trade (the right way) You can be wrong and still make money • Lose 5 x and win 5 x • Lose $100 5 times. • Lost: $100 x 5 = $500 • Win $300 x 5 = $1500 • Net = $1000

12. leadingtrader.com What is a Stop-Loss? • An order placed with a broker to exit the market (either to sell if you originally bought, or to buy back if you originally went short). • It is designed to LIMIT your LOSS and exposure to RISK. • It is not a choice. It is a MUST if you wish to protect your capital.

13. leadingtrader.com "Rule No.1 is never lose money. Rule No.2 is never forget rule number one.”Warren BuffettPROTECT YOUR CAPITAL!

14. leadingtrader.com Where Do You Place Your Stop-loss?

15. leadingtrader.com Where Do You Place Your Stop-Loss? • It Depends on at least 3 factors: • Your Strategy • Volatility of the market • What You See On The Chart: (i) Support/Resistance (ii) Price Structure

16. leadingtrader.com IMPORTANT:Your stop-loss should be placed based on the LOGICAL dynamics of the market!

17. leadingtrader.com Where Do You Place Your Stop-Loss? • It does NOT depend on: • How much money you are prepared to lose or risk on a trade… (this is usually misunderstood) • Some arbitrary figure or percentage away from the entry price.

18. leadingtrader.com Wide Stops or Tight Stops?

19. leadingtrader.com Very Tight Stops: too close to price(NOT RECOMMENDED) entry Stop-loss

20. leadingtrader.com Very Wide Stops:unnecessarily too far from the entryprice(NOT RECOMMENDED) Stop-loss

21. leadingtrader.com Wide Stop: A safe distance awayfrom the price entry Stop-loss

22. leadingtrader.com Tip No.1 : Use wider stops and give it plenty of “wiggle room” (higher odds of success)

23. leadingtrader.com Tip No. 2: Reduce your position size (e.g. trade FEWER contracts/shares or £/per point) when using wide stops

24. leadingtrader.com Logical Techniques For Placing A Stop-Loss

25. leadingtrader.com A Useful Rule To Remember: Ask Yourself: “Where does the price have to move to, to prove that I am wrong?”

26. leadingtrader.com BAD NEWS:The more “smart” you think you are, the more money you will lose…(“smart” people don’t like to be wrong)

27. GOOD NEWS:The more honest you are to yourself, the better a trader you will be…

28. leadingtrader.com Logical Techniques For Placing A Stop-Loss

29. leadingtrader.com Strategy No.1:Price Structure: Support & Resistance

30. leadingtrader.com Price Structure: Support & Resistance • Most common and basic place for stop-loss: • Previous highs and lows • Beneath support or above resistance

31. leadingtrader.com

32. leadingtrader.com

33. leadingtrader.com

34. leadingtrader.com

35. leadingtrader.com Buy Entry at Breakout(from resistance) Stop-loss at recent previous lows(support) Stop-loss at recent previous highs(resistance) Short Entry at Breakout(from support)

36. leadingtrader.com EURUSD – 5 min Flag Example Buy Entry at Breakout(from resistance) Stop-loss beneath recent Lows (support)

37. leadingtrader.com Flag Example Buy Entry at Breakout(from resistance) Stop-loss beneath recent Lows (support)

38. Strategy No.2:Volatility-based stops

39. leadingtrader.com Plot “Average True Range” Indicator on your chart

40. leadingtrader.com Free Charts: getETX.com Average True Range(ATR)

41. leadingtrader.com Free Charts: getETX.com

42. leadingtrader.com Average True Range (ATR)(setting 14) Is a measure of volatility in the market Is an average of the range (difference between highs and lows of each bar) of the price bars for every 14 periods.High Volatility = High ATR readingsLow Volatility = Low ATR readings

43. leadingtrader.com Dow Jones 30 - Daily Average True Rangeis 130 Dow points Average True Range

44. leadingtrader.com Dow Jones 30 – 1hr Average True Rangeis 32 Dow points Average True Range

45. leadingtrader.com Dow Jones 30 – 5 min What is ATR? Average True Range

46. leadingtrader.com Average True Range (ATR)(setting 14) Rule For Stop-Loss Placement: 2 x ATR For example: if ATR is equal to 10 points (or 10 pips/cents) then use a stop-loss 20 points (or 20 pips/cents) away from your entry. Why? Because (ATR x 2) = (10 x 2) = 20

47. leadingtrader.com Dow Jones 30 – 5 min chart What is the stop-losssize based on ATR? Average True Range

48. leadingtrader.com Dow Jones 30 – 5 min chart ATR x 2 means13 x 2 = 26 point stop-loss Average True Range

49. leadingtrader.com S&P mini-futures – 5min Squeeze setup:Bollinger bands (20, 2), Keltner Channels (20,1.5)MACD momentum (8, 21 histogram)(video is on: LeadingTrader.com/squeeze Average True Range (ATR)

50. leadingtrader.com S&P mini-futures – 5min Entry when the squeeze fires!But where is your stop-loss? Average True Range (ATR)