How to set a stop loss position for foreign exchange investment

In the foreign exchange market, it is very important to set up a stop loss. There are three most important elements in foreign exchange speculation: the first is a stop loss, the second is a stop loss, and the third is a stop loss. However, in practice, foreign exchange investors often cause huge losses because the stop loss is not set up scientifically enough. In fact, there are usually three ways to set up stop loss positions:

1. Stop loss after an important support or resistance level is broken

This is the most commonly used mode of operation in actual combat. According to the author's observation, the proportion of investors who stop losses at this position is very high. However, a careful analysis of domestic and foreign exchange charts shows thatforeign exchange marketThere are often patterns in which the price action reverses after the resistance or support position is broken through.

Important resistance or support positions are the following: dense trading areas where the price stays for a longer period of time; price highs or lows over a longer period of time; positions provided by trend lines, golden sections, or moving average systems, etc. The main reasons for the lack of reliability of these positions are:

(1) Large speculative funds can predict the approximate stop-loss price of market investors. They even deliberately match a large number of transactions at certain prices to form the illusion of strong support or resistance, and then use their capital advantage to break through these positions and make profits in reverse after the stop-loss order appears.

(2) The support or resistance positions provided by trend lines, moving average systems, and golden sections are inherently subjective, lack trustworthy basis and foundation, and have very low accuracy. Setting stop loss points at these positions is especially important.

2. After the absolute amount of loss reaches the stop loss

At present, this is the stop-loss method used by more game traders abroad. The main point of operation is to set the maximum loss limit of funds in the entry part, generally 5% -20% of the funds occupied, or the absolute amount of funds occupied, such as 100 yuan per lot. Once the loss limit is reached, no matter what the price is, immediately stop the loss and leave the market.

To use this stop loss method, the following two points must be taken into account:

(1) Different varieties or different operating periods require different stop-loss limits.

(2) The established stop loss limit must be probabilistically validated in the market.

The advantages of this stop-loss method are obvious:

(1) Highlight the principles of fund management. Foreign experience shows that a good trader lies not in how to analyze the market but in how to manage funds well.

(2) It has a probability advantage, and the longer the operation time, the more obvious the advantage.

(3) The stop-loss position is far away from ordinary investors, preventing the market risk caused by the setting of the first stop-loss position.

When using this stop loss method, a lot of statistical and analytical work needs to be done to determine the operating strategy and find the best stop loss amount that suits your operating style.

3. Stop loss after your tolerance limit is reached

This type of stop loss method is often used by beginners. The author's experience is that the use of this stop loss method in short-term operations is still helpful to improve the yield. In fact, some excellent foreign exchange traders often use this type of method.

The specific way to use it is: when you lose money in your position, as long as you can afford it, you can hold on to your position, otherwise stop the loss immediately, even if you have just established a position.

The author believes that this method is suitable for intraday short-term electronic trading, as well as traders with rich experience in the market. Novices are often oscillated out in the high and low positions when using it.

The main basis for using this method is that if you "feel" uncomfortable after you have established a position, it is often because there is something unexpected in the market. Although you may not have time to analyze too much information because of short-term trading, or you may not know it for other reasons, but long-term trading makes you "feel" the risk of the market, and you should immediately leave the market and wait and see.