While we may have short-term profit goals when trading, our long-term goals are based on our short-term performance. Long-term goals are useless without short-term gains. In order to achieve stable and long-lasting profits, we must strike a balance between short-term and long- term targets.
Stop loss is a component of all trades, whether they involve stocks, futures, or forex, and it only benefits investors when it is included in each transaction and followed. To assist you with your investments, I'm bringing you a 3:1 gold stop loss rule today.
Stop loss is a commonly used method of reducing losses in trades made in the current market. Setting a stop loss price alone is not the essence of a stop loss, though. Too many stop losses will undoubtedly result in a significant loss of capital, especially in markets where both long and short positions can be taken, such as the forex and futures markets. Market leaders manipulate stop loss prices for short-term traders by causing repeated shocks, including unilateral rises or falls, and then quickly retracting them. Since the stock market's daily volatility is typically around 5%, won't your stop loss frequently be reached if it is set at 5%?
This calls for consideration of two issues: first, determining the market's trend, whether it is a volatile market or a market with a clear trend; and second, establishing a reasonable stop loss position.
First of all, it's crucial to realize that the trading market's most notable feature is volatility, and most of the time it's in a volatile trend, whether it's in a longer or shorter time frame. As a result, short-term traders should prefer the investment strategy for a volatile market.
The second important step is determining the volatility range. Find recent price fluctuations' highest and lowest prices. A corrective wave will form between these highest and lowest prices following a significant market rise or fall, and it may last for a considerable amount of time. For instance, it takes more time for patterns that are frequently observed to form a new breakthrough, such as triangle consolidation or box consolidation. It depends on your trading period, whether it be daily, weekly, 60-minutes, or even minute-by-minute, what prices you choose for the range. You can find a definite pattern of fluctuation range by using price analysis to identify the operational cycle. Smaller stop-loss prices should be set for such fluctuations outside of the highest and lowest points.
It's important to monitor the price's sustainability once it crosses the highest point. Most of the time, it will go back to the range-bound region. However, a new trend can be identified and the stop-loss can be changed to a trailing stop if the sustainability is strong, it consistently sets new highs, and trading volume keeps rising. Its price should be set at a level that is lower than the highest or lowest price by more than one time period, and there shouldn't be a new high or low for three time periods in a row. At this point, it can be determined that the trend has ended and the market has become range-bound. The trailing stop should be set at a price formed by a relatively large 5-minute candlestick chart, for instance, if the time period is a 5-minute candlestick chart. However, in most cases, it shouldn't go beyond two candlestick chart prices because, after this point, the profit is frequently very small.
The take-profit point's profit is three times as much as the stop-loss point's loss, according to the 3:1 golden stop-loss rule in trading. For instance, you should quickly close your position if you purchase a stock and it declines by 7% or 8%. Instead of being greedy and waiting for your stock to rise even more, you should think about selling some of it when it increases by 20% to 25%. Obviously, the percentage values in this can be adjusted based on the state of the market, but the ratio should always be kept at 3:1.
Some investors might be unsure: What if I set a stop loss at 8% and the stock rises significantly after I sell it, perhaps by more than 50%? Selling it seems like a bad decision, and many investors might no longer adhere to the 3:1 rule. In actuality, we set a stop loss at 8% in order to prevent a decline of 10%, 20%, 25%, 40%, or even more. Consider it a small insurance premium that protects against an 8% loss from becoming a 60% loss. Isn't that a simpler way to handle it? An 8% loss is manageable for most investors, but a 60% loss is a burden that many cannot bear.
Human flaws will manifest themselves in the marketplace. When you own a stock that declines, you will incur some financial losses and develop a fear that it will keep declining rather than a hope that it will rise to make up for previous losses. Trading systems should still adhere to the 3:1 rule for stop losses as a precaution. Finally, I want to wish everyone luck with their investments.
