When it comes to setting a stop loss, there are a lot of different approaches that traders take. Some base it on a certain percentage of the entry price, some use Fibonacci levels, some use volatility indicators, and others simply set a hard limit on how much they’re willing to lose. But what if there was a way to set your stop loss based on time instead of price? In this blog post, we’ll explore how you can do just that. By using a simple technique, you can tailor your stop loss to fit your own trading style and increase your chances of success. So whether you’re a day trader or a swing trader, this method could be worth trying out.
Time stops are a unique type of stop-loss strategy that involves setting a predetermined time period to exit a trade. This is in contrast to the more traditional price-based approach.
Time stops are a great way to manage risk and increase the chances of success for any style of trader. Instead of basing the stop loss on price, this strategy involves setting a predetermined time period in which to exit a trade. This could be a set time such as open limit hours, days, weeks, or even months, specific trading sessions, or a combination of time-based and price-based elements.
Let’s say you’re an intraday trader and you place a long trade on USDCAD.
After lots of waiting and very little movement, you get out of that trade after a set amount of time and get into a EURUSD trade with a bit more movement and opportunities:
Since you have predetermined rules which dictate that you will not hold trades overnight, you decide to close the position at 4 PM EST upon market close, when you are done for the day.
Another example of a time-based stop would be if a swing trader always closes their trades on Friday to avoid gap risk and weekend event risk.
A final example of a time-based stop would be setting a time limit on dead trades that aren’t going anywhere so that you can find a better setup elsewhere.
What to Consider When Setting Time-Based Stops
Time stops are simple to set up, but there are a few key points to consider when using them. Firstly, it’s important to understand that time-based stop losses can be more difficult to manage than a standard price-based one, as you will need to actively monitor the time period in order to ensure you are sticking to your strategy.
Additionally, it’s important to have an understanding of the markets and be aware of factors that could affect the price during the predetermined time period. For example, if you plan on exiting a trade at a certain time but there is a news announcement or some other market event that could cause a drastic price movement, then you may need to adjust your time stop accordingly.
Finally, it’s important to manage your risk and make sure that your time stops are in line with your overall trading plan and risk management strategy. This will help ensure that you are able to stay in the game and make the most of your trades.
Overall, time stops are an interesting and potentially useful strategy for managing risk in any trading style. By using a predetermined time period to exit a trade instead of relying on price-based stops, you can tailor your stop loss to fit your own trading style and increase your chances of success.
Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.