The Use and Classification of Stop-Loss

Stop-loss is a familiar concept to most traders. Correctly setting stop-loss orders is crucial in forex trading, making it essential for investors to prioritize this aspect. Stop-loss methods can generally be categorized into three types, each following specific principles.

1. Intraday Short-Term Stop-Loss Placement
   The stop-loss range should ideally be kept within 50 pips, as most currencies fluctuate around 100 pips daily. A tolerance beyond 50 pips suggests potential misjudgment of intraday trends.

2. Medium-Term Stop-Loss Placement
   The stop-loss range can be wider, but the placement must be strategic. If triggered, it should indicate a clear misjudgment of market rhythm. An effective stop-loss level confirms a directional error upon breach, typically around 100 pips.

3. Trailing Stop-Loss with Market Trends
   For long positions, progressively raise the stop-loss as prices climb:

   • Short-term: Set the stop-loss slightly below significant pullback lows on the hourly chart.

   • Medium-term: If bullish, use daily chart pullback lows as reference, allowing looser stops.