http://www.netpicks.com/tjgiveaway1 - YOUR FREE TRADING SYSTEM I like to think of myself as a risk manger first and a trader second. This ensures that I never forget the importance of a stop-loss when entering any trading position. If you think that how you manage risk will, in part, define how you succeed in trading, you already understand the importance of limiting your trading losses. You have the discipline to not only set your stop-loss but also respect it when price is dangerously close to ending your trade. http://www.netpicks.com/define-your-loss/ - READ MORE

1. Your Stop-Loss Details
http://www.netpicks.com/define-your-loss/

2. I like to think of myself as a risk
manger first and a trader second. This
ensures that I never forget the
importance of a stop-loss when
entering any trading position.

3. If you think that how you manage risk
will, in part, define how you succeed in
trading, you already understand the
importance of limiting your trading
losses.

4. You have the discipline to not only set
your stop-loss but also respect it when
price is dangerously close to ending
your trade.

5. Most traders understand market orders
and limit orders but a protective stop order
is unique. You set a stop-loss to manage
the amount risked on a trade but
sometimes your risk parameters are
exceeded.
Here is how a stop order works in the market

6. Stop-losses are sitting in the market as
limit orders waiting to be filled
When triggered, your stop turns into a
market order

7. Market orders are filled at the best
price available
A runaway market can have your
stop price filled at a worse price than
you originally intended.

8. This is called slippage and for many
traders, it is not a risk that is thought
about nor accounted for in their trade
plans. You never know when slippage
can occur (remember it can also
happen on entry into the market as
well) and it is something that is
difficult to plan for.

9. It's a risk that is present when volatility
enters the market (or in markets that
lack liquidity) and I've really only seen
it be an issue for me when I thought I
could trade the news releases.

10. One frustrating issue for many traders is
when your protective stop gets triggered
and then price continues back in the
direction of your just exited trade. The
market is an order filling machine and
when stops are triggered it causes order
flow which, depending on which side of
the fence you're one, is a good or bad
thing.

11. For big players, triggered stops allow
them to exit and enter positions with
little slippage because the volume is
there to support it.

12. For smaller players, these locations do
allow you to not only get a good price, but
also ride the wave caused by the bigger
positions at play.
For those stopped out, it's a frustrating
and account churning process.

13. To protect your account, you need a
stop in the market.
The question becomes
"where do you place it"?

14. Use an average of the prices such as a
20 period moving average
Place it around trend lines
Place it on the opposite side of support or
resistance
Use market structure

15. There are some drawbacks to each of
these methods:

16. A moving average is simply an average
of previous price. There is not really
an edge in using it.
Trend lines can be subjective at the
best of times and while they can
measure the rhythm of the market, it's
just a line.

17. Support and resistance are very
popular places for stops which makes
them prime targets for stop runs.
Market structure can be used
especially if you use a location where
the trade would be invalidated.

18. There is no perfect location but
whichever you choose, ensure you are
consistent in their usage and place
your stop just outside of the noise of
the market.

19. Structure Based Protective Stop
Think of price action as the pen and
structure as what the pen draws. Price
moves in waves and leaves traces of
where it's been.

20. In an up trending market, we have
price making higher swing lows and
higher swing highs.

22. As long as this pattern is intact, we can
expect our trades to be relatively safe.
Even if the highs start getting lower,
it's not a sure thing that the move is
completed and it may even be an
opportunity to buy into this market.

23. Once the lows get broken, then we
have an issue. This next chart is a
continuation of the one just above.
You can see where the bulls were
running out of steam with the higher
high (HH) but once the lower low (LL)
was printed, buying resumes although
temporarily.

25. Price is in a range (R) and with one
large bear candle, the bottom is
shattered.

26. I want to draw your attention to the arrow.
The candle where bulls stepped in is
an obvious reversal candle - a swing
point - and where did the buyers place
their stops?

27. Just below it and the size of that
momentum bear candle indicates that
those stops were taken out.

28. One main point is that this particular
chart is after a long run up in price.
Buying (or selling) after such a large
move is a risky venture as those who
bought in at the bottom look to take
their profits.

29. The Stop Run
That chart showed that the structure
low was a great spot to place your stop
as price continues to fall after the
retest. Many times though, the next
chart shows what happens.

31. Where the dotted lines start on the
left, we can see price dropped as
sellers stepped into the market.
Following the textbooks, many of the
shorts probably have their stop just
above the pivot thinking that if it is
violated, it's the end of the move.

32. Price pulls back, runs the stops to the
red line and on the same candle, the
sellers stepped in and drove the
market down.
The stop-losses were inside the noise
of the market.

33. Small pierces of support/resistance
do not indicate the move is invalid
and if you scroll through many charts,
you will see this play out time and
time again. The problem is that most
traders want a tight stop which will
allow them to increase their position
size.

34. This desire also puts them in the line
of fire with stop runs. Yes you want
your stop around the pivot area but
also far enough away that these runs
won't hurt you.
You will still risk the same on the trade
it's just that you will have to live with a
smaller position size. Is it foolproof?

35. No and as we had seen in a previous
chart, when the pivots break, the
move continues in that direction.

36. You still are not risking more by having
your stop outside the normal
fluctuations of the market and you
may increase your chance of staying in
when many are taken out.

37. Define The Loss &
Protect Your Account

38. When a potential trade lines up, where
is your stop going to go? Outside a
pivot or range high/low AND adjust for
the noise of the market.

39. Define your dollar risk on the trade
and calculate the number of contracts
you can afford according to your
defined risk amount.

40. Enter the trade and ensure that your
stop-loss is in play.
Allow the stop to execute when
adverse price action takes place.

41. Your stop-loss is your friend that is
meant to save your account from
destruction. Let it do its job by
ensuring you place one on every trade
and as you can see, it is not difficult to
define the location. Just remember to
account for the noise and stay within
your risk tolerance.