Where to Place SL Orders
A stop loss order should be set in a place where if the market reached such level, the probabilities of failure of our trade increase enormously, thus you want to get out before the currency pair falls/peaks any further. At this level, we want to be out the market as soon as possible.
Placing the stop loss orders should be well thought out. If a trader puts the stop loss too close to the entry price, then the market is likely to reach this level due to normal fluctuations. On the other hand, if the stop level is too far away from the entry price the loss could be a painfully large one.
There are no hard rules to set stop loss orders.
Although it totally depends on our individual trading style, there are important guidelines that every trade should take in consideration.
Basically there are three ways to determine effective stop loss levels:
Based on a fixed percentage.
Based on important levels and market behavior.
Based on volatility indicators.
We will discuss the merits of each in the coming sections and allow you to draw your own conclusions.