2. Strategies For Reducing Risk with Alessio Rastani leadingtrader.com The Science of Using A Stop-Loss

3. This presentation is neither a solicitation nor an offer to Buy/Sell stocks, futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this webinar. The past performance of any trading system or methodology is not necessarily indicative of future results.

4. Strategies For Reducing Risk with Alessio Rastani leadingtrader.com The Science of Using A Stop-Loss

5. leadingtrader.com 1)Understanding a stop-loss order 2)My top 3 techniques for placing a stop: (i) simple (ii) advanced 1)A key indicator to watch before you place a trade 2)Ideal places to place a stop 3)Where You should never place your stop 4)Best and Worst Times To Trade The Agenda

6. “You Can Never Go Broke Taking A Profit…” ~ Wall Street Saying

8. leadingtrader.com

9. How Most People Trade BUY Price SELL leadingtrader.com

10. 1 Sell order Buy2 UnlimitedProfit Limited loss Use Stop Loss Orders To Control Risk leadingtrader.com

11. You can be wrong and still make money Win 9 times, and lose once Win $100 x 9 = $900 Lose $1000 Net: - $100 How Most People Trade (wrong way) leadingtrader.com

12. You can be wrong and still make money Lose 5 x and win 5 x Lose $100 5 times. Lost: $100 x 5 = $500 Win $300 x 5 = $1500 Net = $1000 How Professionals Trade (the right way) leadingtrader.com

13. 1)An order placed with a broker to exit the market (either to sell if you originally bought, or to buy back if you originally went short). 2)It is designed to LIMIT your LOSS and exposure to RISK. 3)It is not a choice. It is a MUST if you wish to protect your capital. What is a Stop-Loss?

14. leadingtrader.com "Rule No.1 is never lose money. Rule No.2 is never forget rule number one.” Warren Buffett PROTECT YOUR CAPITAL!

15. leadingtrader.com Where Do You Place Your Stop-loss?

16. leadingtrader.com It Depends on at least 3 factors: Your StrategyYour Strategy Volatility of the marketVolatility of the market What You See On The Chart: (i) Support/Resistance (ii) Price StructureWhat You See On The Chart: (i) Support/Resistance (ii) Price Structure Where Do You Place Your Stop-Loss?

17. leadingtrader.com IMPORTANT: Your stop-loss should be placed based on the LOGICAL dynamics of the market!

18. leadingtrader.com It does NOT depend on: (1) How much money you are prepared to lose or risk on a trade… (this is usually misunderstood) (2) Some arbitrary figure or percentage away from the entry price. Where Do You Place Your Stop-Loss?

19. leadingtrader.com Wide Stops or Tight Stops?

20. leadingtrader.com Very Tight Stops: too close to price (NOT RECOMMENDED) entry Stop-loss

21. leadingtrader.com Very Wide Stops: unnecessarily too far from the entry price (NOT RECOMMENDED) Stop-loss

22. leadingtrader.com Wide Stop: A safe distance away from the price Stop-loss entry

23. leadingtrader.com Tip No.1 : Use wider stops and give it plenty of “wiggle room” (higher odds of success)

24. leadingtrader.com Tip No. 2: Reduce your position size (e.g. trade FEWER contracts/shares or £/per point) when using wide stops

25. leadingtrader.com Logical Techniques For Placing A Stop-Loss

26. leadingtrader.com A Useful Rule To Remember: Ask Yourself: “Where does the price have to move to, to prove that I am wrong?”

27. leadingtrader.com BAD NEWS: The more “smart” you think you are, the more money you will lose… (“smart” people don’t like to be wrong)

28. GOOD NEWS: The more honest you are to yourself, the better a trader you will be…

29. leadingtrader.com Logical Techniques For Placing A Stop-Loss

30. leadingtrader.com Strategy No.1: Price Structure: Support & Resistance

31. leadingtrader.com Price Structure: Support & Resistance Most common and basic place for stop- loss: Previous highs and lowsPrevious highs and lows Beneath support or above resistanceBeneath support or above resistance

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36. Stop-loss at recent previous lows (support) Buy Entry at Breakout (from resistance) Stop-loss at recent previous highs (resistance) Short Entry at Breakout (from support)

37. leadingtrader.com EURUSD – 5 min Flag Example Buy Entry at Breakout (from resistance) Stop-loss beneath recent Lows (support)

38. leadingtrader.com Flag Example Stop-loss beneath recent Lows (support) Buy Entry at Breakout (from resistance)

39. Strategy No.2: Volatility-based stops

40. leadingtrader.com Plot “Average True Range” Indicator on your chart

41. leadingtrader.com Average True Range (ATR) Free Charts: getETX.com

42. leadingtrader.com Free Charts: getETX.com

43. leadingtrader.com Average True Range (ATR) (setting 14) Is a measure of volatility in the market Is an average of the range (difference between highs and lows of each bar) of the price bars for every 14 periods. High Volatility = High ATR readings Low Volatility = Low ATR readings

44. leadingtrader.com Average True Range Average True Range is 130 Dow points Dow Jones 30 - Daily

45. leadingtrader.com Average True Range Dow Jones 30 – 1hr Average True Range is 32 Dow points

46. leadingtrader.com Average True Range Dow Jones 30 – 5 min What is ATR?

47. leadingtrader.com Average True Range (ATR) (setting 14) Rule For Stop-Loss Placement: 2 x ATR For example: if ATR is equal to 10 points (or 10 pips/cents) then use a stop-loss 20 points (or 20 pips/cents) away from your entry. Why? Because (ATR x 2) = (10 x 2) = 20

48. leadingtrader.com Average True Range Dow Jones 30 – 5 min chart What is the stop-loss size based on ATR?

49. leadingtrader.com Average True Range Dow Jones 30 – 5 min chart ATR x 2 means 13 x 2 = 26 point stop-loss

50. leadingtrader.com Squeeze setup: Bollinger bands (20, 2), Keltner Channels (20,1.5) MACD momentum (8, 21 histogram) (video is on: LeadingTrader.com/squeeze Average True Range (ATR) S&P mini-futures – 5min

51. leadingtrader.com Average True Range (ATR) S&P mini-futures – 5min Entry when the squeeze fires! But where is your stop-loss?

52. leadingtrader.com S&P mini-futures – 5min For stops – you can use either: PRICE STRUCTURE (previous highs/lows) OR use 2 X ATR 2 x ATR = 2 x 1.6 = 3.2 pt stop distance 2 x ATR = 2 x 1.0 = 2 pt. stop distance

53. leadingtrader.com EURUSD – 4hr Short Squeeze fires! Where is your stop?

54. leadingtrader.com EURUSD – 4hr Based on Price Structure (previous highs = 1.3350)

55. leadingtrader.com EURUSD – 4hr Based on Volatility: ATR x 2 = 38 x 2 = 76 pips away from entry price

56. leadingtrader.com Risk Free trade: Once in profit, Don’t forget to move your stop to breakeven!

57. TIP – WRITE THIS DOWN! You can also trail your stop based on 2 X ATR

58. leadingtrader.com You can trail your stop based on 2 X ATR As the market moves in your favour, Trail your stop based on 2 x ATR

59. leadingtrader.com Keltner Pullack Setup (K.P.)

60. leadingtrader.com Keltner Pullback Setup (K.P.) Also Volatility Based – but easier than ATR. Use Keltner Channels (volatility based envelope indicator) - settings: (21 period, 2.0 ATR multiplier, 14 ATR) – Daily charts (21 period, 2.5 ATR multiplier, 14 ATR) – Intraday Charts PLUS: MACD setting (20,43,3) (NOTE: On getETX.com charts, instead of MACD you can use the “Awesome Oscillator” setting: 21,89)

61. leadingtrader.com Keltner Channel settings: (21, 2.0) for Daily charts or (21, 2.5) for intraday getETX.com

62. leadingtrader.com As the market moves in your favour, Trail your stop based on 2 x ATR Daily Chart settings

63. leadingtrader.com Intraday Chart settings

64. leadingtrader.com As the market moves in your favour, Trail your stop based on 2 x ATR EURUSD – Daily Chart Awesome oscillator (21,89) on getETX.com is used as a directional filter

65. leadingtrader.com As the market moves in your favour, Trail your stop based on 2 x ATR EURUSD – Daily Chart Awesome oscillator (21,89) on getETX.com is used as a directional filter Sell Short Example: Entry at pullback to the Mid-band (21 EMA) (blue arrow) Stop-loss at UPPER Band (red arrow) First profit target at LOWER Band (magenta arrow)

66. leadingtrader.com As the market moves in your favour, Trail your stop based on 2 x ATR LONG (Buy) Example: Entry at pullback to the Mid-band (21 EMA) Stop-loss at LOWER Band First profit target at UPPER Band

67. leadingtrader.com As the market moves in your favour, Trail your stop based on 2 x ATR Sell Short Example: Entry at pullback to the Mid-band (21 EMA) Stop-loss at UPPER Band First profit target at LOWER Band

68. leadingtrader.com Where you should never place your stop Too close to entry price Ignoring the volatility (ATR) of the market Close to an obvious point of support and resistance (place the stop slightly beyond this area)

69. leadingtrader.com Best and Worst Times To Trade Best Times: Tuesday – Thursday 10am ET – 11:30am ET and then at 3pm ET – 4pm ET (last hour) Worst Times: Too close to news announcements Lunchtime Doldrums 11:30am – 2pm ET Typically the first half hour of market open Choppy Markets

70. leadingtrader.com Recommended Charts & Trading Platform: All Countries (except USA): getETX.com (FREE) USA: Tradestation - contact: Tony Ortiz LeadingTrader.com/charting France, Germany or Italy (FREE): LeadingTrader.com/charting

71. leadingtrader.com THANK YOU very much for attending this webinar! Next FREE Webinar: 2-Day Live Trading Webinar with Alessio Rastani and Kevin Burton Thursday 3 rd May and Friday 4th May