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Trading > Stop Loss Orders > Maximum Acceptable Loss

Maximum Acceptable Loss

Set the maximum loss that you are prepared to accept on any single trade. This is usually expressed as a percentage. Avoid trades where the difference between your entry level and the stop-loss exceeds the maximum acceptable loss.

Consider the following factors when determining your maximum acceptable loss:

  • Whether you are investing or trading;
  • The time frame that you are trading in;
  • Whether you are trading on margin;
  • Your overall risk profile; and
  • Your level of diversification.

A long-term investor/trader with reasonable risk diversification may find 6%, or even 10%, an acceptable limit. A short-term trader may set a limit of only 2%.



 
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