It has been said many times that is not important where you enter a trade, but where you exit that really counts. This is very true in the fact that entry points can be profitable anywhere, if you get out at the right time.
Using technical analysis to mark your exit points will make your trading strategy that much more accurate. Good stop losses will make it much easier to reach your trading goals and stop the dangerous cycle of drawdown and teach you to improve your trading.
Below horizontal support
It would be foolish to put a stop loss right at a horizontal support line. Chances are that the security will bounce off the support line and continue upward slightly. Many new traders, in an attempt to be ultraconservative, will put their stop losses right on top of horizontal support. Horizontal support is one of the strongest support lines so putting your stop loss directly on the line makes simply zero sense.
Oscillator support
When the oscillators, such as the MACD or RSI, are reading very low numbers, it would be wise to place your stop loss closer to the current price. The chance that a new wave of momentum will carry the price higher is greater, and thus, assuming more risk on a less risky investment would increase your chance for bigger losses. Technical analysis oscillators are very good at picking bottoms; use them as a way to gauge future support areas.
Between a gap
Gaps are often underestimated for their power. Strategies for gapping up work very well on the daily charts, as do strategies for gapping down. Gaps usually represent horizontal support, although they may work with slanted trendlines. Placing stops below a gap will lessen the chances of becoming stopped out, which will inevitably improve your trading.
200 period moving average
The 200 period moving average works very well as a support and resistance line. Arguably, the most used moving average and possibly technical analysis indicator, the 200 day moving average works very well with the basic trading fundamentals. If the price is above the 200 day moving average, expect plenty of support after a large drop.
Bollinger bands
If you don’t use Bollinger bands for any other purpose than support and resistance, you’re still getting your money’s worth. Bollinger bands, even in the default setting, are great as support and resistance due largely to the numbers of people who use them. Placing a stop loss below the current bottom Bollinger band line is a good way to protect yourself from an untimely exit. Indeed, Bollinger bands are one of the best technical analysis assets available.
