You will see time and time again that you need to set stop-loss points so that your losses do not spiral out of control. How do you know just where to set these points though? Will an arbitrary number work, or do you have to pinpoint an exact level that you don’t want the currency in question to drop to?
The answer to this question is a bit complex. You need to look at each situation and each trade individually. First, identify what type of trend the currency is in the middle of. If the currency is trading within a range, you will want to identify what a realistic drop in price could be. You do not want to just look at how much you can stand to lose and go from there. You always need to identify market conditions and act accordingly.
A chart is a great tool for helping you set a stop since price channels are much more easily determined with a chart. Find a chart appropriate for the elemental trader and you are trading and determine what the trading range is. Prices typically tend to bounce between a level of support and resistance. Your stop-loss point when using a chart should be just below the level of support. This is because prices have a tendency to fluctuate, even throughout the course of a day. If you are setting your stop-loss in the middle of a range, it is very likely that the price will drop before it goes up. If it is in the range, this is much more likely to be hit. Remember, you want your stop-loss points to work for you, not against you.
