This article has been translated from English to Gen Z Slang.
Yo, let's dive into the OG of stop types: the percent-based stop loss. 👀
The percentage stop is all about playing it safe with a fixed slice of ya trading account. 😎
Like for instance, “2% of the account” is the max a trader is willing to vibe with on a trade.Traders be wildin' cuz some of 'em flex hard with a 10% risk, while the chill ones are out here risking less than 1% per trade. 💸
Once you lock in that risk percentage, your trading game is all about calculating how far out you should place your stop based on your position size. 🔥
Seems lit, right?
So you’re stopping your losses according to the plan, just like a good homie with a trading plan.Think you’re doing something good, huh?
NAH!!!🚫
Low key, you should be setting your stop based on the market vibes or your system rules, NOT on how much you wanna lose fam. ⚠️
Bet you're like, “Huh? That sounds hella sus. I thought you said to handle risk properly?”
No cap, it’s confusing but lemme break it down with a story. You remember Newbie Ned from your Position Sizing grind, right?
Newbie Ned’s got a mini account with $500 and he’s rolling with the minimum 10k units. Ned's going all-in on GBP/USD cuz he’s peeped that resistance at 1.5620 be holding tight. 🔍
Ned's risk management is tight, risking no more than 2% per trade. 🙌
At 10k units of GBP/USD, each pip is $1 and 2% of his account is $10.
The tightest stop Ned can rock is 10 pips, so he puts it at 1.5630 on this one. 🤔
But the GBP/USD be zooming over 100 pips a day! He’s straight-up asking to get stopped on any lil' move.
Because of the limits on his account, he’s all about how much he wants to lose instead of looking at the GBP/USD’s vibe check. 👀
Let’s watch what happens next.
And bam! Ned got stopped out right at the peak 'cause he was hugging that stop loss too tight! Besides flunking this trade, he yeeted the chance to snag over 100 pips. 💥
From that, you can see the risk with doing percentage stops is it leads traders to set stoppy at random-levels on the chart, fr.
Either that stop’s right in the entry’s face—like with Ned—or it’s at a level that doesn’t give no technical analysis respect. 📉
You could literally be planning your stop right where the price could do a U-turn and head straight your way (we’ve *all* seen that happen, fam). 🙃
But since you already bailed out, you couldn’t snatch those pips! Bruh. 😞
The glow-up for Ned is finding a broker that’s a vibe for his trade style and starter stack.Ned's next move should be with a forex broker that’s all about those micro or custom lots. 💡
At 1k of GBP/USD, each pip is a chill $0.10. 💸
To stay comfy in his risk zone, Ned can put a stop on GBP/USD at 100 pips before he spills 2% of his account. 🔓
The math is easy: 100 pips x $0.10 = $10.
Now he can set that stop based on market conditions, his trading system, support, resistance, and all those good vibes. 🚀