Placing a stop loss on a position you have opened in purchasing or selling shares is a delicate affair. If the stop loss is too tight, a trade will not have enough breathing room. The market tends to surpass retracement and support levels by a few pips before consolidating at a certain point. Such a movement pattern is responsible for activating stop losses positioned. Profitable traders do not set it at the exact point being targeted to avoid the risk of triggering their exit position order.
In a bullish run, a stop loss is placed a few pips above the most recent swing high. Such an arrangement gives an opened position ample breathing space. In case you want to go long in the market, you have to keep an eye on the support levels. By applying the Fibonacci tool available in your charting software between the most recent high point and low point you can analyze support levels for pointers on suitable placement points. Depending on the time frame you are trading by, you can place your stop loss order a few pips on top of your chosen support level. The Fibonacci tool gives a range of potential support levels increasing chances of accurate prediction of market movement.
Trading on a bearish run works similarly. When going short, attention is paid to the zones of resistance on your charting software. These zones can be analyzed by drawing a line between the recent highest point and its swing low. A charting software offered by your broker will give you five resistance zones to work with. Based on what time frame you intend to use, a trader places the stop loss order a few pips below the chosen resistance level. Although this increases the risk a person will be exposed to, it will prevent the activation of your exit spot prematurely.
Besides the Fibonacci tool as an indicator of where to place an exit spot, you can use the RSI to determine where to place your exit position. When the RSI is close to 70 or slightly past 70, exit order will be placed a few pips above the current reading since the market is oversold and is about to go on a bearish run. If your RSI is running under level 30, a stop loss is drawn a few pips under the current price. This is a pointer that shares are overbought and their value has gone down.