Stop Losses - Time Based
http://www.financial-spread-betting.com/course/stop-order-types.html PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MORE! Another way of looking at stop losses is to consider the length of time that you are in the trade. Sometimes this can be like the premise-based stoploss, as it could well be part of your premise or assumption that something will happen within a certain period. In other words, if the trade is going as I expected when I entered it, then it should do it in this time.
Other times, you’re looking at the actual time taken by the trade, and comparing this to the cycles of the market to make sure that you’re not caught out by changing conditions. This might apply if you’re daytrading, and you want to avoid being in the trade during a quiet lunch period or perhaps during a busier time leading up to the closing bell.
It’s possible that for most trades you enter you should have a certain time-based stop loss in mind. You enter a trade assuming the price is going to move in one direction or another, and you really don’t want to wait around indefinitely for something to happen. If the price is exceptionally sluggish, then you may not be seeing the profit you hoped for but neither are you seeing the market come to your stop loss price. So you should quit the trade which is going nowhere, and put your money to better use elsewhere.
You’ll find differing opinions on whether you should place your stop loss in the market. Some traders say that you should never reveal your hand by setting a level with your broker, as unscrupulous dealers can make sure the price hits your stop loss before it goes in the required direction. But if you’re not daytrading and watching the market from second to second, or at least minute to minute, then you may miss a move that goes past your stop loss level and lose more than you anticipated when you finally close the trade.
When you’re deciding on how much you’re going to stake, it’s important to set your stop loss, no matter how you arrive at it, before you settle on an amount. You should be familiar with the concept that each trade shouldn’t risk losing more than a certain percentage of your funds. Some people set this percentage at 2%, and even experienced traders may claim that this is too much. Two percent may not sound like much, but bear in mind this is how much you’re going to lose if you exit at the stop loss, and not how much you’re actually staking.
So once you have decided on a stop loss level, however you are going to enforce it, you can then work backwards to figure out how large a stake to put into any particular trade, not to lose more than the amount you’re permitting yourself. It’s important that you don’t do this the other way around, deciding on your stake and then trying to figure out your stop loss position, as you could either risk losing more than you should, or be tempted to modify your stop loss against your better judgment, perhaps risking that the trade which should have worked gets ended prematurely.
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