Tuesday, November 15, 2016

how to decide stop loss

i am always surprised to see the whole world decide trade on the basis of mango and stop loss on the basis of grapes.

stop loss should be in the same currency in which the trade was taken.

i.e. if a bullish trade was taken based on a signal from bullish divergence of rsi, then stop loss of that trade should be the point when that bullish divergence is threatened or no more valid.

similarly, if a trade is taken on the basis of a pattern, then stop loss is that level where that pattern no more holds good.

to take another example, a trade taken on the basis of nifty level should have a stop loss where that level is broken.

taking stop loss on the basis of nifty level while taking the trade on the basis of a technical indicator or level is wrong, imo.

also, tick size on the chart should be considered before deciding whether the stop loss is taken or still stands. e.g. if u r monitoring a chart with 5 min tick size, u shouldn't take the SL as hit till the chart marking after that 5min window is actually beyond that SL. that much of risk is to be taken, technically.

there is a good chance that if the stop loss is say 8180 spot on a 5 min chart, nifty may go down till 8168 (say) and jump back to above 8180 before that 5min window.

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