How might a trader go about identifying a risk level ahead of time?
Traders should always focus first on risk, then on profits. Risk represents the level where a trader might set a stop order in order to exit an unprofitable trade with minimal losses. By setting stops ahead of time you have already made a major effort at mentally rehearsing trades in case things go wrong. For a long position, I would advise the trader to first identify the support level on the price chart then place the stop order just below this support level. I define support as a level where a declining price trend can be expected to halt temporarily due to a concentration of buying demand. Support levels are not predictors of where prices might go, but they do indicate possible or probable points where they might bounce. Potential support points include previous highs and lows, the upper and lower areas of gaps, trendlines and reliable moving averages. Once the price falls below a support level, then the trader should immediately minimize that loss and quickly liquidate the positio
