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leading trader .com. Strategies For Reducing Risk with Alessio Rastani. The Science of Using A Stop-Loss. This presentation is neither a solicitation nor an offer to Buy/Sell stocks, futures or options. No representation is being made that any
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leadingtrader.com Strategies For Reducing Riskwith Alessio Rastani The Science of Using A Stop-Loss
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.
leadingtrader.com Strategies For Reducing Riskwith Alessio Rastani The Science of Using A Stop-Loss
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
“You Can Never Go Broke Taking A Profit…” ~ Wall Street Saying
leadingtrader.com SELL How Most People Trade BUY Price
Use Stop Loss OrdersTo Control Risk Unlimited Profit Limited loss 1 2 Sell order Sell order Sell order Buy Sell order leadingtrader.com
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
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
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.
leadingtrader.com "Rule No.1 is never lose money. Rule No.2 is never forget rule number one.”Warren BuffettPROTECT YOUR CAPITAL!
leadingtrader.com Where Do You Place Your Stop-loss?
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
leadingtrader.com IMPORTANT:Your stop-loss should be placed based on the LOGICAL dynamics of the market!
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.
leadingtrader.com Wide Stops or Tight Stops?
leadingtrader.com Very Tight Stops: too close to price(NOT RECOMMENDED) entry Stop-loss
leadingtrader.com Very Wide Stops:unnecessarily too far from the entryprice(NOT RECOMMENDED) Stop-loss
leadingtrader.com Wide Stop: A safe distance awayfrom the price entry Stop-loss
leadingtrader.com Tip No.1 : Use wider stops and give it plenty of “wiggle room” (higher odds of success)
leadingtrader.com Tip No. 2: Reduce your position size (e.g. trade FEWER contracts/shares or £/per point) when using wide stops
leadingtrader.com Logical Techniques For Placing A Stop-Loss
leadingtrader.com A Useful Rule To Remember: Ask Yourself: “Where does the price have to move to, to prove that I am wrong?”
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)
GOOD NEWS:The more honest you are to yourself, the better a trader you will be…
leadingtrader.com Logical Techniques For Placing A Stop-Loss
leadingtrader.com Strategy No.1:Price Structure: Support & Resistance
leadingtrader.com Price Structure: Support & Resistance • Most common and basic place for stop-loss: • Previous highs and lows • Beneath support or above resistance
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)
leadingtrader.com EURUSD – 5 min Flag Example Buy Entry at Breakout(from resistance) Stop-loss beneath recent Lows (support)
leadingtrader.com Flag Example Buy Entry at Breakout(from resistance) Stop-loss beneath recent Lows (support)
leadingtrader.com Plot “Average True Range” Indicator on your chart
leadingtrader.com Free Charts: getETX.com Average True Range(ATR)
leadingtrader.com Free Charts: getETX.com
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
leadingtrader.com Dow Jones 30 - Daily Average True Rangeis 130 Dow points Average True Range
leadingtrader.com Dow Jones 30 – 1hr Average True Rangeis 32 Dow points Average True Range
leadingtrader.com Dow Jones 30 – 5 min What is ATR? Average True Range
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
leadingtrader.com Dow Jones 30 – 5 min chart What is the stop-losssize based on ATR? Average True Range
leadingtrader.com Dow Jones 30 – 5 min chart ATR x 2 means13 x 2 = 26 point stop-loss Average True Range
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)
leadingtrader.com S&P mini-futures – 5min Entry when the squeeze fires!But where is your stop-loss? Average True Range (ATR)