stop losses, page-10

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Here is a quote from some training information that I picked up. It makes good sense.

"There is no magic number that will work with for all trades but a rough guide is to use anywhere from 2% to 10% on an equity trade. The value that you use will depend on the trading strategy that you have adopted. A short term trader of equities might use a 3% stop whereas a a medium term trader might use an 8% stop. For trading leveraged instruments the stop could be as high as 20%. A stop loss should be placed fare enough away from the entry point as to prevent being 'stopped out' on normal volatility but not so far as to suffer from unecessary loses. A percentage stop is best used in conjunction with a capital conservation technique"

The reference to capital conservation relates to not risking any more than say 2% of your capital in any one trade. This obviously implies that you are working with a reasonable sized account - for instance if you only had $10,000 to invest your maximum risk on one trade would be only $200 which is impractical.

regards