The stop loss always been the key to trading , this is the factor which will make you lose or make money. The are many money management rules traders used like having a ratio of at least 2.1 with the limit, where for every pip of stop loss there will be 2 pips in your possible limit or target . I belive it should be like that , the limit always should be at least double the stop loss.
Many traders place the stop loss using different levels like round number , resistance and support levels .I will explain today how to place the stop loss using the Elliot wave principle. As we know , there are rules in Elliot wave Principles that dictate the two principal moves in EWP , a impulse or a correction. Those are the two ways the market move according to Elliot , the difference between those two moves is that a impulse have five waves and the correction has three waves. so how the stop will be place with this in mind . One of Elliot wave principle rules is that wave 4 can not get into wave 1 , another is that wave 2 can not retract more that 100% wave 1. we going to use those two rules to place our stop.
Lest said we see 5 waves in the hourly chart , we wait for three back and place the stop at the beginning of wave 1, if that level is over take then we know the count is wrong and the market goes the other way. usually this stop is very small around the 38.2% of wave 1 distance. Then lets said we saw a impulse three wave in the hourly chart , we see a corrective structure from the low of wave 3 , we posted our self in the 38.2% of wave 3 and the stop loss will be the lower point of wave 1 , same situation if the market take that level , then the move from the high is corrective and the market will go in that direction .
Those are the ways stop should be placed using Elliot wave principle , always will give answers in case the trade become negative , because of these two simple rules.