In forex trading, often our position is not in accordance with market movements. Therefore, we often have to be firm with ourselves by "execution" stop loss. Stop loss is one form of risk management in trading. The term stop loss means closing the position of a loss position at a certain level because we predict that if the position is not closed then the loss will become bigger. To close that position we must make sure that market conditions will actually move farther in contrast to our position.
There are several ways to determine the stop loss level based on the strategy:
Stop loss on blind trading
Blind trading is a trade that focuses on money management, so often entry points, exit points, profit targets including stop loss in blind trading is not the result of an analysis but because of the mathematical calculation of a trading strategy. For example Open buy of 5% equity when the new open price is formed, profit target 10 points, stop loss 10 points. From the above example, a blind trader does not require an analysis in determining stop loss. Because once the transaction loses, he will do the next strategy.Stop loss on real trading.
The correct trade is to open positions that are always preceded by analysis. In this type of trading stop loss can be determined in three ways:
a. Use indicator
An indicator that is often used as a stop loss level is Parabolic SAR. The rule of thumb is to open a position with its stop loss is on the Parabolic SAR value at that time. That is one of the indicators that can be selected in determining stop loss. Actually, there are many indicators that can be used as a reference to determine to stop loss. The selection of this indicator depends on the trading pattern of the trader itself.
b. Using Support or Resistance Lines
Support or resistance is the price level that is usually used as a market reflection point. So we can place the stop loss position behind the support and resistance lines with the assumption that the level will not be touched because the market will bounce before about the stop loss level. If the support and resistance line is broken then the price will continue, so it is correct if we place the stop loss behind the support and resistance line.
c. Using trend lines
The trend line can also be a stop loss level on the grounds that as long as the trend is not over yet, the chart will always be ahead of the trend line. So if the charts cross the trend line, we can be sure the price will keep moving away opposite to our position.
There are several ways to determine stop loss that can be used in your trading. Perhaps often this stop loss problem becomes a "nightmare" for traders. But it's better to take a stop loss than our losses become even greater, which in turn will have a traumatic effect on our trading patterns.
Noteworthy is that there should be a little distance between the stop loss level with the reference level of the stop loss, so it does not occur until the market that touches our stop loss and then the market reverses direction. So basically stop loss is fair (even for professional traders though), again there is always a new opportunity every day in the market.