It is probably as important as knowing where to enter the market or make a profit, and where to put your losses. You can not enter a trade based only on the Fibonacci level without knowing where to leave the market.
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This way your account will perish and you will forever blame Fibonacci, and curse him in Italian. In this lesson, if you decide to use reliable Fibonacci levels, here are some ways and techniques to limit losses. We teach you.
These are just some of the goal setting shareware that you can use.
Method 1: Set the loss limit right after the next fibo
The first method is to set your loss limit right after the next Fibonacci level. If you were to enter the market at the Fibo level of 38.2%, set your loss limit above the level of 50.0%. If you feel that the 50.0% level is working, set your loss limit after the 61.8% level and that’s it. It’s simple, yes?
Let’s take another look at the 4-hour EUR / USD chart we showed you in the Fibonacci correction lesson.
How to use Fibonacci to determine the limit of losses in trades
If you were trading at 50.0%, you could place your stop order right after the 61.8% Fibonacci level. The reason for this loss-making method is that you believed that the 50.0% level acted as a resistance point. Therefore, if the price wants to rise above this point, your trading hypothesis is practically invalid.
The problem with this method of loss adjustment is that it all depends on whether you have a very good entry. In setting the loss limit, right after the Fibonacci level of the next correction, it is assumed that you are really confident that the support or resistance area will act. And as we have already mentioned, the use of design tools is not an exact science.
The market may suddenly go crazy, limit your losses and then go in the direction you want. Usually these times we want to go to a corner and bang our head against the wall. We’re just warning you that this might happen, maybe a few times in a row, so make sure you stop your losses quickly and let the winning chances continue. Give.
It is best to use this method to place a loss limit on your short-term, multi-hour trades.
Method 2: Set the loss limit after the recent floor / ceiling fluctuations
Now, if you want to work a little safer, another way to determine your loss limit is to pick them up after the recent swing floor and the recent swing ceiling. For example, when the trend is bullish and you are in a buying position, you can set the breakout just below the last floor of the swing, which acts as a potential support level.
When the price is in a downtrend and you are selling, you can set the breakout level just above the fluctuation ceiling, which acts as a potential resistance level. This type of loss setting provides more room for trading to breathe and creates a better opportunity for the market to move in your favor.
How to use Fibonacci to determine the limit of losses in trades
If the market price exceeds the ceiling and floor fluctuations, it may indicate that a reversal has taken place. This means that the assumption or arrangement of your transaction has now been invalidated and it is too late to enter the market.
Adjusting for larger losses is probably best used for longer-term trades and volatility. You can also use it in combination with the “position scaling” method, which we will teach you later.
Of course, with a bigger loss limit, you have to remember to adjust the size of your position accordingly. If you want to trade in the same position, you can suffer a lot of losses, especially if you enter one of the previous levels of Fibo.
It can also lead to unfavorable risk-to-reward ratios, as you may have a large loss margin that is not commensurate with your potential reward.
So which way is better?
Just like when we combine Fibonacci correction tools with support and resistance and trend lines and candlesticks to have a better entry, it is best to use our knowledge of these tools to analyze the current environment to We help in choosing a good loss limit point.
As far as possible, you should not set your loss limit solely on the support and resistance levels of Fibonacci levels. Remember, picking a loss is not a guarantee.
But if you can increase the odds in your favor by combining several tools, it can help you get a better exit point, give you more room to trade, and possibly give you a better risk-to-profit ratio.
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