Where to place your stop loss? There are many tried-and-tested methods you can use.
You're allowed to take a break now to take in all those tough-sounding terms such as:
1. Moving Average
2. Exponential moving average (only for geeks)
3. Volatility
4.
6. Trailing Stop Loss
7. Position-Sizing system
The bad news is, you need to understand all of the above to understand how Tom Basso's stop-loss method works.
The good news is, it's not that hard to understand and use these methods.
Just basic math skills are required (and a nice calculator might help!) If you are a serious trader or investor, the rewards could be worth it.
How to use Technical Analysis (TA) to Set your Stop-Loss
Most traders use technical analysis of some sort. Usually, TA indicators are used to decide when to get into a position (as an entry signal).
TA is rarely used to calculate a stop-loss. However, many successful traders use technical indicators to calculate a stop-loss.
Their logic is understandable:
** You MUST know how a stock behaves, over a period of time, in order to set an effective stop-loss. **
For instance, a 4-5% stop-loss might be effective for trading a counter like Reliance. But, it might not work for RNRL, which is much more volatile.
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