Determine your risk tolerance: Before implementing a stop loss, it’s important to understand your risk tolerance, which is the amount of risk you are willing to take on.
Set the stop loss at a logical level: This level should be based on your trading strategy, market conditions, and risk management rules. For example, you might set a stop loss at a certain percentage of your account balance, or at a specific dollar amount.
Use stop-loss orders: A stop-loss order is an order that automatically closes a trade when the price reaches a certain level, it limits your potential losses on a trade.
Use trailing stop-loss: Trailing stop-loss, it’s a type of stop loss that follows the market, and it will move along with the price of the asset, which will allow you to lock in profits as the market moves in your favor.
Review and adjust your stop-loss levels: It’s essential to review and adjust your stop-loss levels regularly, especially if the market conditions change. When the market is highly volatile, it’s better to have a tighter stop loss, and vice versa.
It’s important to remember that stop-losses are not a guarantee against losses, and it’s possible that the market could gap or move rapidly against you, executing your order at a different price than expected. However, they can be a useful tool for managing risk and limiting potential losses. Additionally, it’s important to consider not only the price level but also the time frame, you may want to consider increasing or decreasing the stop loss in correlation with the market volatility and volatility of the assets you are trading