How To Set A Stop Loss In Trading – To Avoid Getting Stopped Out Unnecessarily


What’s up everybody, this is Floogiel
trader Jeff, author of the book trading part-time… And in this video lesson we’re
gonna talk about how to set a proper stop-loss in trading so you don’t get
stopped out unnecessarily and stick around to the end because I’ve got a
free document that I’ve created that’s gonna help you uncover the biggest
trading myths of all all right everybody let’s go check out the video ok so the
key to not getting stopped out unnecessarily and setting a proper
stop-loss is you must set your stop-loss order below support okay and what I mean
by support is remember support is any area that the stock comes down to and
bounces up so in order to set a proper stop-loss and avoid unnecessary losses
you must always set your stop-loss order below support now this way when you get
into a trade the stock can move around move around anything that happens
between resistance and support is considered price fluctuation we don’t
care about price fluctuation that’s not gonna stop us out we must put our stop
loss order below support that way we let the stock wiggle a little bit my mentor
always told me you said your stop-loss order above support you deserve to be
stopped out ok so the key to setting a proper stop-loss is to set that order
below support so that way you can let the trade move around it doesn’t matter
if you’re trading a breakout trade if you’re trading a bounce trade or you’re
trading some type of pattern we must set our stop loss order below support so we
can let that trade wiggle around and that way we don’t get stopped out
unnecessarily so let’s go take a look at what that looks like
on the chart ok so now let’s take a look at what setting a proper stop-loss order
looks like on the chart so this is a chart
is a chart of the Dow Jones 30 so support is any area that the price comes
down to and bounces up for example price came down bounces up so I would draw
support price came down bounces up that’s why I would draw support price
came down and then it bounced up that’s why I draw support so when I set a stop
loss order below support what I mean is if I’m setting the stop loss order I
need to set that stop-loss order below support okay just like this this is what
it looks like on the chart below support so this way if price bounces and moves
around I don’t get stopped out unnecessarily okay remember if you set
your stop-loss order above support then you run the risk of getting stopped out
unnecessarily so you must set your stop-loss order below support so right
here again this is the support level so what I’m gonna do is I’m gonna set my
stop-loss order below support so again this way when price comes down to
support all of this happening in between support and resistance and resistance is
any area to the stock goes up to and pulls down so any price movement between
these two areas is considered price fluctuation and so you must set your
stop-loss order below support to not run the risk of getting stopped out
unnecessarily there we’ll do it again that is the support level so again we
must set our stop loss order below support to run the risk of not getting
stopped out unnecessarily so another thing you need to do to set a proper
stop-loss so you avoid getting stopped out unnecessarily and losing more money
is to set a proper stop-loss that aligns with your money management
rulz now what i mean by that is whatever the amount of money you’re willing to
put at risk on each trade you need to make sure that you set a stop loss order
that aligns with the amount of money that you’ve decided to put at risk so if
I’ve decided that I’m gonna risk $500 per trade whatever way entry order is I
need to make sure that my stop-loss is set up that if I get stopped out I only
lose that amount of money that I was willing to lose okay so let me go show
you right now what that looks like okay so rule number two says that we must set
a proper stop-loss order that aligns with our current money management rules
so if our money management rules say that we need to earn two dollars for
every dollar that we risk then we must set our stop loss order properly so it
aligns with those rules for example if our entry into this trade is two hundred
and sixteen dollars and 33 cents and our stop loss order is two 1175 that means
that we are risking four dollars and fifty eight cents on this trade so if
we’re risking four dollars and fifty eight cents on this trade then our
reward has to at least be nine dollars and 16 cents which is two to one of what
we’re willing to risk so in this particular example where our target is
two 26:44 so our reward is over ten dollars so that meets our proper money
management rule so rule number two you have to set a proper stop-loss order
that aligns with your money management rules of at least a two-to-one reward to
risk ratio and if you do that then you will have proper money management and
you will have set your stop-loss accordingly to help you avoid losing
unnecessary trades okay so the third and final thing when
it comes to setting a proper stop-loss order so you can avoid getting stopped
out unnecessarily is make sure that your stop-loss is set to where you’re only
risking half of the amount of money that you’re willing to make let me talk about
that for a second so if I’m willing to risk $2 in this trade I need to make
sure that my target is at least twice maybe three times as great so I must be
willing to make four dollars up to six dollars on that train
so my stop-loss order must be set to where my risk is only half the amount of
money that I’m going to make if the stock goes to my target so again if I am
willing to risk $2 and I set my stop loss order that if I get stopped out I’m
gonna lose $2 I need to make sure that my target order is at least four dollars
maybe six dollars okay so if you do that then you will set a proper stop-loss
order and that’ll help you avoid getting stopped out unnecessarily so let me go
show you what that looks like okay so now let’s take a look at the chart and
examine rule number three number three was set a proper stop-loss order that
we’re only risking half the amount of money that were willing to make for
example our risk in this trade was four dollars and fifty eight cents that’s the
difference between our entry price of 216 33 and our stop loss order which
again is set below support at 211 seventy-five so when we subtract those
two numbers we at a risk of four dollars and fifty eight cents that’s how much
money we’re willing to lose now if our target is set at 226 44 then we subtract
that from our entry price of two 1633 and
gives us a reward of 10 dollars and 11 cents so we must set a proper stop-loss
order that were only risking half of the amount of money at a minimum that we’re
willing to make so for risking 4 dollars and 58 cents on
this trade then the the minimum that our reward needs to be is nine dollars and
sixteen cents that gives us twice the amount of reward that were willing to
risk and since in this trade our reward is 10 dollars and 11 cents it meets our
guidelines of at least two to one and that by knowing that information that
will help us set a proper stop-loss order to help us trade more successfully
and now you know how to set a proper stop-loss in trading without getting
stopped out unnecessarily but do you know the biggest most common trading
miss of all no problem I’ve created a free document that I want to give you
called the ten common trading errors right how to avoid the traps that most
people face for example trading too much that’s one of the big traps okay so I
want to give this to you for free so click the link in the description box
below to download it now if you liked this video don’t forget to hit the like
button below share it with your friends and subscribe to the channel oh and by
the way make sure you hit that little bell so you can be notified whenever we
shoot a brand new video alright everybody until next time I’m
Floogiel trader Jeff, author of the book Trading Part-time, and we’ll see you in the next video-lesson

18 thoughts on “How To Set A Stop Loss In Trading – To Avoid Getting Stopped Out Unnecessarily

  1. Thanks for watching my video! Are you struggling with how to set a stop loss in trading? If so, then which one of these three steps do you feel is the most helpful?

  2. I didn't know anything about stop loss. Thanks for sharing.

  3. I knew about a stop loss, but did not know that that there was room in there for the stock price to fluctuate a bit.

  4. Thanks for sharing. I’ll be sure to share with my investor friends.

  5. thanks for explaining this, did not know what a stop loss was

  6. Hi Jeff. Really informative video and I love your presentation and use of outdoors too. Deirdre. X

  7. Very well-explained technique to implement. It still amazes me how many people don't use stop loss.

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