Knowing where to place a stop loss is as important as knowing where to enter or take profit. You cannot enter based on Fibonacci levels without considering the timing of exit.
In this lesson, you will learn some technical methods for setting the stop loss level when you decide to use the Fibonacci tool that you can trust. These methods are easy for you to set the stop loss level, and the use of each method is followed by rules.
If you plan to enter the market at the 38.2% Fibonacci level, it is best to set your stop loss below the 50.0% Fibonacci level. If you feel that the 50.0% level will be stable, then you better set the stop loss below the 61.8% level. It’s simple, isn’t it?
Aggressive method: only set the stop loss below the Fibonacci level.
If you have set a stop loss at the 50.0% level, you may have placed your stop loss order just below the 61.8% Fibonacci level.
The reason for this method of setting a stop loss is that you believe that the 50% level will remain stable as a resistance level. Therefore, if the exchange rate exceeds this level, then your trading strategy will be invalid.
The problem with this method is that it mainly depends on the perfect entry point you choose.
The premise of setting a stop loss just after the exchange rate crosses the next Fibonacci level is that you are very confident that the exchange rate will be stable at the support or resistance level. And, as we pointed out earlier, using drawing tools is not an exact science.
There may be a major market breakthrough, which will break your stop loss and eventually move in the direction you judge.
We are only here to warn you that this situation may occur, so you should ensure that you can quickly limit the losses you have suffered and keep your profits in line with the trend.
If you use the Fibonacci tool to set the stop loss in short-term intraday trading, this may be the best method.
Conservative method: set the stop loss at the high or low of the exchange rate through the band
Now, if you plan to adopt a more secure strategy, it would be a good idea to set the stop loss level at the exchange rate crossing the recent high or low band.
This method will give you more breathing space and provide a greater opportunity for the market to move in the direction of your choice.
If the market price exceeds the swing high or swing low, this may indicate that the exchange rate will reverse. This means that your trading strategy is no longer working.
Setting a wider stop loss is probably the best for long-term trading, and this method is also suitable for interval trading.
Of course, if you set a larger stop loss, you should also remember to adjust your position appropriately.
If you plan to trade with the same size position, but you set a larger stop loss, then the loss you may suffer will also be greater than before, especially if you are at a certain Fibonacci level before When entering.
This will also cause your return/risk ratio to be at an unreasonable level, because the wide stop loss you set is not proportional to the return you may achieve.
So, which method is better?
The fact is that just like using the Fibonacci retracement tool with support resistance, trend lines and candle lines to find a better entry point, the best way is to combine your knowledge of analytical tools and current Comprehensive analysis of market conditions to select good stop loss points.
You should not rely solely on Fibonacci levels as support and resistance, and use the above support or resistance as the basis for setting your stop loss.
Remember, the setting of the stop loss point is not a definite thing, but if you can combine a variety of analysis tools to calculate the approximate stop loss point, this will help you find a better exit level and will give you Trading together has more breathing room, and at the same time, you will also get a better return/risk trading ratio.