Many traders assume you should set your stop based on how much money you are willing to lose. This is a huge mistake institutional traders wish you continue to make. Stop placement requires greater talent than that. A stop must not be placed too close to the current market price or too far away.

Someplace You Should Never Place A Stop

Just above former highs or exactly below previous lows is a unsafe place for stops. An equally dangerous place for stops is at the 50 and 200 day MAs. This is for the reason that lots of stops are often lodged together at these prices, welcoming institutional stop-runners to snipe the stops. Preceding intraday highs and lows are also areas where stops will build up.

The Chief Error You Have To Steer Clear Of When Placing A Trailing Stop

When placing a trailing stop, you have to reposition the stop in a certain direction only. Provided the market is moving higher and you are long, your trailing sell stop must be moved higher. Equally, if you are short and the market is moving lower, you must move your buy stop down-never higher-as the position gains profits.

How To Manipulate Fibonacci Retracement Levels As Places To Situate Your Stops

The greatest percentage you want the market to retrace is .618 (61.8%) of the initial move. You don’t want the stop placed exactly at the .618 point, but a little under or above that level, depending upon whether you are buying or selling. The logic is, institutional stop-runners will frequently target the stops at that level. As soon as the market has retraced more than .618, odds are the market is going to continue to trend in its present direction.

How You Can Uncover If Institutional and Professional Traders Are Stop-Running

Stop-running is characterized by what is identified as price rejection. The market quickly moves lower, only to put on a swift recovery. This chart pattern generally appears as a ‘v’ bottom. At highs, the market will often rise up on short covering, go lifeless at the top, and swiftly move lower. This chart pattern usually appears as a ‘v’ top. Once the stops are run, the market usually moves in the opposite direction.

How Market Volatility Can Help You Establish Your Stops

As market volatility increases, the stops should be moved further away from the current market price. Keep an eye on the Volatility Index ($VIX). The higher the $VIX, the further away from the existing market price you should set your stops. This only makes common sense, since otherwise random moves will cause the stops to be hit. Aim to avoid placing your stop where other traders have placed theirs. An abundance of stops at one price will trigger panic buying or selling and you will receive a dreadful fill as a result.

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