The most common mistakes of traders by placing a stop loss

In this article, we will talk about the most common mistakes made by traders when placing a stop. We know that not to forget to place your stop loss is crucial in terms of money management but when it is misplaced it can lead to significant losses. Hence the importance of paying attention when you start a new trade.

Place your stop loss too close

The first mistake, the most common, especially among beginners, is to place his stop loss too close, not to leave his trade enough room for maneuver. If your stop loss is placed too close, you do not allow your position to fluctuate. It is necessary to always take into account the volatility inherent to each pair and the possible fluctuations according to the forex economic calendar of the day.

For example, if you are long on the GBPJPY pair at 145.00 with a stop loss at 144.90. Even if your analysis is good, ie the pair will go up, it is always possible that due to market movements, the cross falls by 10 or 15 pips before reaching again the rise towards 147.00. But if you placed your stop loss at 144.90 you will not be able to make a potential gain of 200 pips as your stop is placed too close to your entry point into the market.

The lesson to remember is that you have to leave some room for maneuver in your trade and especially take into account the volatility of the pair.

Refer to the size of his position rather than the technical analysis

Some forex traders also usually determine their stop loss according to the size of their position rather than according to technical analysis. This is often a very damaging mistake.

Refer to the size of his position to calculate how far your stop could be has absolutely nothing to do with how the market will evolve. Since forex consists of trading the market, it is therefore supposed to place its stops according to the trend.

It is very logical since, after all, the trades choose their entry points and their objectives according to the elements provided by the technical analysis so it is appropriate to do the same to place the stop loss. Of course, this does not mean that you have to make a cross on the size of the position but this is not the first item to consider when placing a stop loss.

Place your stop loss too far

This is the exact opposite of the first error. Some forex market traders make the mistake of placing their stop loss too far, praying to all the gods that could carry the earth so that the price goes according to their wish sooner or later. This is the typical case of a trader who does not decide to close his trade despite being a loser, hoping that at one time the market gives him reason while he could invest the money of this trade in A position certainly more profitable.

By placing a stop loss too far, a trader substantially reduces his chances that his trade will win. In general, it is considered in the forex that it is desirable to place its stop loss closer to its entry point on the market than to its price target.

Place its stop loss on the support and resistance levels

Place your stop loss too close? Hazardous choice. Place his stop loss too far? Risk of loss accentuated. Where then to place its stop loss? One thing is certain, not on the levels of support and resistance . The technical analysis must help us to place its stop loss but that does not mean that it must be placed at these levels.

In fact, if you are long on a trade it may be worth looking for a close support below your entry level on the market and placing its stop loss in that area. Conversely, if you are short on a trade, then look for a resistance above your entry level and place your stop loss in that area. The idea is that by placing your stop loss close to these levels but not exactly at these levels you will have better visibility vis à vis your trade. You will be able to see if the price has broken the resistance / support and so find out whether your appreciation of the trend is right or wrong.

You will understand, there is no miracle rule to place its stop loss on the foreign exchange market. There are however some mistakes to avoid and also some basic rules that one can follow in order to have some help at the beginning. One thing is certain, to start a trade without placing a stop loss is to make sure to lose the money invested. So, basic rule: always place his stop loss!