Leverage trading is something beneficial especially if you know how to properly control the risk associated with your trade. First of all, you need to know the kinds of stops to use. You can use stop strategies based on the price action and you can also use exit strategies that are based on technical signals.
Signal Stop
Based on its name, it is obviously a stop indication. It mostly occurs whenever the system can provide a signal at the right time to enter a trading position. This becomes the opposite direction of the existing position. This strategy belongs to the stop-and-reverse system.
Time Stop
We all know that risk/reward is multidimensional. A time stop is important when using short-term trading, considering the opportunity cost as well as the cost of money. This type of stop is mostly used to allow a trader to exit a position at a particular time after entering a position.
After some time and no profit has been made, the chances of it not happening in the future also increases. Because of this, the opened position has to be closed in order to avoid more risks on the part of the trader. Another variation used in this strategy is the cutting of the size position over a course of time. This ought not just to eliminate the risk but also to position room to create some profit.
Targets
When exiting a target price, you can use an exit strategy, this means that short-term trading will be used most of the time. A new trader might also think that if he gains $250, he can just make an exit. This scenario is very common among new traders. There’s also a good return if you test your targets first just make sure that the target calculation is quantified.
For a longer-term target, the position size can be lessened and trailing stops must be tightened through the help of volatility adjustments and money stops.
Execution
In leverage trading, traders can use execution risk strategies as they are very useful for short-term traders. When you use exit execution, you should base it on the signal. The time where the trader opens a trade is the most emotional moment that can bring advantages or disadvantages.
Another great way to execute an exit or an entry is through scaling. But this isn’t mostly practiced by retail traders but large financial institutions that hold large positions. Although not mostly practiced by small-time traders, it is equally beneficial as long as the retail trader has the capacity to operate trades that have more than one standard lot. Scaling means that the trader can enter or exit a position over the course of time using small amounts.
Using these strategies in trading helps minimize the losses and risk normally associated in every trade you make. It is also important to look closely at these stops to identify which one you should use on your trades. Trading can be full of risk and losses but managing them will be easy if you know a good risk management strategy.
