Do you know the best stop-loss that doesn’t easily get triggered?
In my eight nine years of trading journey, I have used many different stop-loss methods, but only a few actually increased my win rate.
So, I decided to rank nine stop-loss methods in a tier list.
The ones I’m going to put near the top of the list are the best, and those near the bottom are not that good.
Number nine.
Many traders like to set the stop-loss after a trend line or moving average.
Like they take a long trade and set the stop-loss below the trend line or a moving average.
They think that since these trend lines and moving averages act as support, the stop-loss has a lower probability of getting hit.
But the thing is, these trend lines and moving averages are not usually visible on higher timeframes.
If a support resistance is not visible to most people, not many are going to react to it.
In other words, these trend lines and moving averages are weak support resistance.
And therefore, the stop-loss set after them is also weak.
In my experience, the 200-period moving average acts as better support resistance than other moving averages.
So, I many times like to set the stop-loss on the other side of it if it’s nearby.
But overall, it’s still weak compared to other things I’m going to rank in this video.
So, I will put the setting stop-loss after the trend lines and moving averages in the B tier.
Number eight.
If you have been trading for a while, you have probably seen traders set their stop-loss using the ATR indicator.
Like, they will take a long trade and then add the ATR value to the entry price.
And that will be their stop-loss.
Sometimes, they will multiply the ATR value by two or three times to set a wider stop-loss.
However, if you have seen the Trading Rush videos, you probably know that I like to use the ATR indicator slightlly differently. I like to add the ATR value to the existing stoploss to avoid getting hit by the market noise.
For example, if I have a stop-loss below a support resistance, but I fear it might get triggered because of the market noise when the price comes near the support, I will add the ATR indicator value to increase the distance.
This works well enough.
But I usually don’t directly add the ATR value to the entry price itself to set the stop-loss.
The only time I have done this is during backtesting with code.
In fact, we even have backtesting data on the Trading Rush channel that says adding an ATR stop-loss directly to the entry price gets a much lower win rate.
So, I will put directly using ATR stop-loss in the D tier.
Number seven.
When I’m trading momentum, like catching a strong short-term movement, especially in the stock market, I like to set the stop-loss after the entry candle.
Like, if I take a long trade, then the stop-loss goes below the entry candle.
When the price moves in the upward direction, I move the stop-loss below the new closed candles.
This is because I want to exit as soon as the strong upward momentum is lost.
Outside the short-term momentum setups, a stop-loss below the candle usually sucks.
But for momentum setups, it’s a simple and useful trailing stoploss.
So, I will put it in the C tier.
If it were useful in more scenarios, I would have put it in higher tiers.
Number six.
The VWAP indicator works as a good support resistance in the stock market.
Unlike moving averages, it’s even visible at the same place on all other timeframes.
But it only works as support resistance when there is strong one-sided momentum going on.
Otherwise, the price ignores it and crosses it frequently.
But in strong momentum setups, if the price is near the VWAP and I have taken a trade, I like to set the stop-loss after it as well.
I will put it in the B tier.
Number five.
If you set the stop-loss without considering any market structure, like you set it at a random place, then it’s a bad stop-loss.
I will put it in the D tier.
Number four.
Speaking of setting stop-loss without considering any market structure, I have used stop-losses that work according to data but are not based on any market structure.
For example, the stop-loss is set as a multiple of the entry price or a multiple of the profit distance.
These kinds of stop-losses are special and only work on specific setups.
Basically, if the tested data says the stop-loss works, then it’s a good stop-loss.
I will put special setup stop-loss methods in the A tier.
Number three.
One of my favorite places to set the stop-loss is after the horizontal support resistance areas.
I’m specifically talking about the horizontal support resistance areas where the price has reversed strongly from.
If there was a big reversal, then that reversal point is most likely visible on the higher timeframes as well.
In other words, more people are likely to react to that support resistance.
So, a stop-loss after that horizontal support resistance area is a good stop-loss.
It will have a lower probability of getting hit.
So, I will put it in the A tier.
Number two.
I did a testing video on the Trading Rush channel a while back, where I tested different stop-loss methods in a trend.
In that test, a strategy with the pullback stop-loss got the highest win rate.
Like, after a long entry in an uptrend, setting the stop-loss below the pullback is a good move.
So, I will put the pullback stop-loss in the A tier.
Number one.
In my entire eight nine years of trading journey, one of the best places to set a stop-loss I have found is where you combine the pullback stop-loss with support resistance.
Like, if I take a long trade and there is a horizontal support area nearby, I prefer setting the stop-loss below both the pullback and the horizontal support area.
If there is a 200-period moving average nearby, I will put the stop-loss after it as well.
If I don’t want the market noise to trigger the stop-loss when the price comes near it, I will add the ATR value to it as well.
Basically, when you combine and set the stop-loss after things that price can reverse from, the stop-loss has a much lower probability of getting hit.
When I see these kinds of scenarios, I know the setup will be a higher-quality setup.
So, I will put it in the S tier.
Thanks for watching!