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Quotable Quotes: “Risk Management”

“The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning.”
~ Charles Tremper

Trading Stop Loss – Where To Place It?

September 11th, 2011 No comments


An good post on setting of stop loss for trade positions. Here are some of the key, useful pointers:

* No right or wrong about placing of tight or wide stop loss – the key is to limit the risk of each trade to an acceptable level.
* If a wider stop loss is placed, then the size of trade has to be reduced to accomodate the larger price difference.
* The creator of the video prefers tight stop, and I personally think it is probably a better approach, choose what suits you.
* Regardless of whether a tight or wide stop is preferred, it should be in exactly the same place – i.e. it is not a function of where it is suppose to be but rather where your entry point is (at initial sign of turning or if you prefers to take up position after further confirmation) with respect to the stop.
* So, where to place the stoploss? Stoploss to be placed when it invalidates the set up.
* Take the trade if could get it with a good entry, else, give it a pass.
* Establish support levels, and once it is established, take up position near the congestion area and placed a stop below the support.

Some personal comments:
* Stoploss / cutloss level is more applicable for traders. For investors, it is a different approach altogether.
* For short position, apply the same stoploss approach, only that it is the other way around.
* Cut losses short and ride profit as much as possible.
* Consider average up (same sizes as initial position or reducing sizes, personally I prefer reducing sizes) if position is moving in your favour, while making sure to manage risk at all times.

Last but not least, Good Luck.

Risk Management: Protecting Your Capital

“Don’t focus on making money; focus on protecting what you have.” 

~Pual Tudor Jones


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