Setting stop losses in a timely and correct manner is an important means of effectively preventing trading risks. Timely exit plays an important role in foreign exchange trading, as "everything is predicted, it is established, and failure to anticipate". Excellent investors not only rely on analyzing market trends, but also seize opportunities to exit.

So, how to correctly set stop loss in foreign exchange trading? What should be noted when setting a stop loss?

1. Stop loss after breaking through important support or resistance levels“

I The Necessity of Stop Loss: World Investment Master Soros once said, 'There is no risk in investing, only investments that are out of control have risks. That's why I chose to invest in foreign exchange. I can control losses myself at the beginning of my investment (GMT Markets also provides investors with free guarantee of stop loss).'. Stop loss is far more important than profit, because breakeven is always the first priority and profit is the second. Establishing a reasonable stop loss principle is quite effective, and the core of a cautious stop loss principle is not to allow losses to continue to expand.

Understanding the significance of stop loss is important, but it is not the ultimate result. In fact, there are many examples of investors setting stop losses without executing them. Why is stop loss so difficult? There are three reasons: firstly, the mentality of luck. Some investors, although aware that the trend has already broken, are too hesitant to take another look and wait, resulting in missing out on a great stop loss opportunity; Secondly, frequent fluctuations in prices can make investors hesitant, and frequently incorrect stop losses can leave lingering memories for investors, thereby shaking their determination to stop losses next time; Thirdly, executing a stop loss is a painful task that challenges and tests human weaknesses.

1. Stop loss after breaking through important support or resistance levels“

It is precisely because of the above reasons that when the price reaches the stop loss position, some investors miss out and worry about gains and losses, changing the stop loss position one after another; Some investors temporarily change their minds and increase their positions against the trend, attempting to put all their eggs in one basket to recover losses; Some investors simply adopt an "ostrich" policy and let it go after expanding losses. To avoid these phenomena, we should firmly establish the concept of stop loss first.

II The most appropriate "stop loss" principle for setting a stop loss refers to: based on prior judgment at the time of entry, once there is a significant difference between the market's operating trend and expectations, it is necessary to proactively leave the market at the set price level in a timely manner to achieve the goal of minimizing risk and protecting financial security.

Setting a stop loss should be determined according to changes in foreign exchange trends. The method of setting effective stop loss under different trends is to first confirm the market operating trend, that is, the direction, during the analysis process of setting stop loss prices. There are different stop loss setting methods for operating under different trends. The key points of the core stop loss setting method are: following the trend operation, such as buying in an upward trend (selling short in a downward trend), the space of the stop loss point can be set relatively loosely, because we can provide a certain amount of space by following the trend operation. When operating against the trend, such as buying in a downward trend (selling short in an upward trend), the stop loss position should be set strictly because we are dancing on the edge of the knife. If encountering a sideways trend, the choice of stop loss price can obviously only occur when the consolidation range breaks through.

1. Stop loss after breaking through important support or resistance levels“

There are usually three ways to set up stop loss positions: 1 Stop loss after breaking through important support or resistance levels

This is the most commonly used operating mode in practice, such as setting a stop loss at the next support level when trading long in euros; Short the euro and stop losing at the previous resistance level. The advantage of this approach is that it is simple, fast, and easy to make judgments. In order to prevent false breakouts from sweeping back to the original trend after reaching the stop loss, general traders will amplify several additional points near the support and resistance levels as stop loss levels.

2. Stop loss after the absolute loss degree reaches

This is the most common and traditional stop loss method, which is to set a stop loss based on a percentage of the amount of funds, that is, to act according to one's ability. The key point of its operation is to establish a maximum loss limit for the funds in the entry position, which is generally 5% -20% of the occupied funds, or it can be the absolute amount of the occupied funds, such as 500 per hand. Once the loss limit is reached, regardless of the price, immediately stop the loss and leave the market. When using this stop loss method, it is necessary to pay attention to the following two points: firstly, different types or operating time periods need to use different stop loss limits. The average daily volatility of various currencies varies. For currencies with larger volatility and faster movements such as the yen, pound sterling, and euro, the stop loss can be set slightly higher, such as 50-100 points. Commodity currencies, such as the Australian and New Zealand dollars, have a relatively small average volatility, and with commodity currencies moving slower than major currencies, stop losses can be relatively small. The second is that the established stop loss limit must be verified by probability in the market.

The advantages of this stop loss method are that firstly, it highlights the principles of fund management, and secondly, it has a probability advantage. The longer the operation time, the more obvious the advantage

3. Self control stop loss

Some investors are skilled in mid to long term investment trading and have a clear understanding of their trading entry position. They have their own psychological exit position, and their trading is mainly in the mid to long term, without caring about a few points or even dozens of points of profit and loss.

Another method commonly used by some mark to market traders is to constantly monitor the market, test opportunities during orders, and manually close positions once a trend change is detected after placing an order. Using this stop loss method in short-term operations is still helpful in improving returns. This method is suitable for short-term trading.

III There is always no certainty in dealing with stop loss correctly, and all analysis and predictions are only a possibility. In fact, in every transaction, we also cannot determine whether to stop loss. If the stop loss is right, we may feel happy. If the stop loss is wrong, not only will there be the pain of bearing the loss, but there will also be a pain of being fooled by the market, resulting in hostility towards the market. Therefore, understanding a stop loss is essentially how to correctly understand a wrong stop loss. We should also accept the wrong stop loss openly. If your stop loss is always correct in a transaction, it means that every transaction you make is correct, and if your transactions are all correct, why stop loss? So, stop loss is a cost, the cost of finding profit opportunities, and the price that must be paid for trading profits. This cost only depends on size, and there is hardly a right or wrong distinction. To make a profit, you must pay a price, including the cost caused by incorrect stop losses. Face the wrong stop loss calmly, don't avoid it, let alone be afraid. Only in this way can trading continue normally and ultimately make a profit.

Finally, once again, remind investors to treat stop losses correctly. In long-term foreign exchange trading, if there is no reasonable loss, the transaction is false, not a practical transaction in reality, but a mere talk on paper. It is precisely because of the existence of losses that perfect markets and transactions are formed.

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