Anyone use very tight stop losses successfully?

[UKtradergirl]

I have seen in some threads here that some people use very tight stop losses, perhaps around 10 points or so (or less).

Is anyone here producing good success rates with such tight stop losses?
Obviously it depends very much on how long you hold the trade, if you are a scalper or hold your trades for a few days at a time or longer. I would be particularly interested to hear from any successful people who hold trades for say, at least 4 hours at a time, and hence representing a potentially massive risk:reward ratio.

Of those that are using tight stop losses, do you get stopped out constantly on trades that would then have turned into huge profit? Or perhaps stopped on price spikes? Have you increased your definition of a 'tight stop' to account for the increased volatility of today's markets?

When i use tight stops, it reduces my percentage of winning trades dramatically and the only one who seems to benefit is the spreadbetting company. Maybe i just need to let my winning trades run longer, but the real problem for me is the psychology of having so many losing trades... especially when i see them turn around into what could have been profit moments later.


Opinions and experiences will be much appreciated

UKTraderGirl

 

[BSD]

Tight stops need to be defined imo in terms of both system logic, AND previous price excursions.

To me, TraderDante absolutely uses tight stops when he enters on a daily pin bar, and has his stop at the "wrong end", which when breached clearly signals that his trades logic has failed, BUT has targets MANY times the size of his initial SL.

I have tight stops in the sense that I basically trade trends, sometimes breakouts which necessitate what I call wider stops, but that are still tight relative to where markets can go, but obviously tighter when I buy pullbacks, where it becomes evident far quicker if it's a pullback, or trend change.

Defining tight relative to methodolgy and prior price patterns, stops should not be an arbitary distance of 5 or 10 or whatever points away, but if eg you trade a pin bar,the distance from your entry to the wrong end of the pin bar would be your tight stop, no matter how many points away that is, its still tight, as the logic of such a system dictates taking profits may thimes the size of your losers.

Or in a pullback, when you start buying the bounce, buying strength, then the distance between your entry and the low of the pullback is your stop, and that then is tight no matter if its 10, 20, or 50 points, provided the uopward potential is far greater relative to the risk you entered imo.

 

[shadowninja]

If your entry is perfect then you can use tight stops. I will stick with 50 pip stops for swinging.

 

[shadowninja]

True, BSD, if that is how you define tight.

 

[N Rothschild]

depends on your definition of tight and the market..often tight stops you are just handicapping yourself and can often get stopped out several times just trying to get a good entry

 

[UKtradergirl]

depends on your definition of tight and the market..often tight stops you are just handicapping yourself and can often get stopped out several times just trying to get a good entry

Interesting responses. I guess everyone has a different definition of what tight is.

I suppose for me the best way forward to better my trading is to work on better trade execution but still keep my stops at a reasonable distance. Also, i think holding the trade for longer as long as it is profitable and the trend is still strong enough, helps too. Hell, why not hold the trade with a trailing stop until it eventually gets stopped out?! I don't know why but i keep cancelling trades which could have gone on for some days to net me 5 times the amount of money.

 

[N Rothschild]

if your using multiple lots try scaling out of your trade, this can be good as your booking profits as you go while still leave a runner to get stopped out. ona day trade on the s&ps i would normally look to take 1/3 at 1point, 1/3 at 2points then leave the final 1/3 to run with a break even or just above break even stop. my ussual stop for a day trade is ussualy 2p (1:1 risk.reward) on the s&p (20-30 on the dow) swings could be anywhere from 2-20p on the sp. Whats your risk like? i risk a max of 1% per day trade and a max of 5% per swing/posistion trade. Hope this helps

 

[UKtradergirl]

Risking around 1 to 2%. In this context i suppose a slightly larger stop is acceptable.

I try to think of things in context a bit. e.g. if i was investing in the FTSE100 directly at say, 3900, that is £3900 of investment. I wouldn't close the investment just because it had dropped £10, i would wait and know that the potential reward is much greater. Obviously there is a cut off point though, particularly if a previously trending market breaks major support/resistance and shows signs of carrying on- i say get out immediately, no matter what your stop is .

 

[options]

for scalps 8 points max.

scalps that turn into longer (good) trades, trailing stop of 15.

swing trades anything form 50 to 250

scalping is seconds. Target reached, close trade. What happens after that? Who cares.
If a longer stop is needed when scalping, the trade is left to float on by until the next one sets up.

If nothing sets up, (very rare). Just twiddle thumbs.

If you use a longer stop on tight trades you will have a tendency to let trade run to that stop instead of exiting yourself. Very very bad practise imv.

If price hits your stop and then goes in the direction you chose, well that's tough. You were proved right, get your entry better next time. Don't be annoyed at the market.
You chose the entry.

You develop a feel for when a trade is going bad. Go with that feeling and chop as soon as you can. First cut is the cheapest.

 

[graemenash]

Not sure I'm adding to anything that hasn't already been said, but it does indeed come down to what you consider to be a "tight" stop.

Let's say the market trades down into a confluence of support levels and I buy it there with a stop just below the bottom of the support confluence.

If we're talking about a 1min chart then my stop might be between 5-15 points away. But if its the same setup on a daily chart my stop might be 50-150 points away; nonetheless it's still the same principle and therefore a tight stop based on the fact that I think the market has reached a bottom and won't go any lower.

Stops should always be defined by the market; in as much that they should be placed at a level that makes sense technically (as BSD said) and never by the monetary amount you wish to risk, or by an arbitrary round figure.

 

[BSD]

it does indeed come down to what you consider to be a "tight" stop.

Let's say the market trades down into a confluence of support levels and I buy it there with a stop just below the bottom of the support confluence.

If we're talking about a 1min chart then my stop might be between 5-15 points away. But if its the same setup on a daily chart my stop might be 50-150 points away; nonetheless it's still the same principle and therefore a tight stop based on the fact that I think the market has reached a bottom and won't go any lower.

Totally agree !

 

[wasp]

Stops are there to cut you from a trade swift when the reason you entered is no longer valid.

How 'tight' they are all depends on your entry.

 

[shadowninja]

First cut is the cheapest.

Did you sing that in your head when you typed it?

 

[options]

Of course. Even got the leopard print skin tight leather trousers!

Not a pretty sight.

 

[Rhody Trader]

Risking around 1 to 2%. In this context i suppose a slightly larger stop is acceptable.

These things - risks % and stop positioning - should have nothing to do with each other. The risk % is something you define as part of your general trading plan. The stop positioning should come from your specific trading strategy - basically your exit point should the trade not work out. You use them together to figure out position size.

 

[BSD]

These things - risks % and stop positioning - should have nothing to do with each other. The risk % is something you define as part of your general trading plan. The stop positioning should come from your specific trading strategy - basically your exit point should the trade not work out. You use them together to figure out position size.

I agree.

First you figure out where your trade idea will be invalidated, and that's where you put your stop loss. The distance from your stop to your entry is then translated into your position size, ie the percentage of your account you're willing to lose if your stop gets hit, 1 or 2 or 3% or whatever.

 

[shadowninja]

I suppose, in a way, if you calculate the stop to be 100 pips and you don't have enough to cover it for several trades then you can't afford to trade.

 

[oiltanker]

stop is related to the system? so for me stops are neither tight nor loose but what the system says? time frame would determine the average pip number?

 

[UKtradergirl]

Okay i've had a major 'aha' moment reading this thread.

Think i have been thinking about this whole stop business from the wrong point of view. Rhody's post in particular made me stop and really consider what i am doing and trying to acheive each time i place a stop at a particular level.

Well, thanks for your input everyone- must go away now and try and build this new found wisdom into my current trading.

 

[Trader333]

There has been a lot of discussion about placement of stops and whether they should be very tight or otherwise. For those who are able to optimise their entry then a tight stop is fine. For those who are not currently able to do this then a good idea is to consider market volatility at point of entry and adjust position size relative to it. That way a less than optimum entry will not take you out of the trade too early and it will limit your risk to the same amount for every trade taken. An approach used by many for this is to measure the Average True Range (ATR) for the time frame that you are trading and using this as a means to set how much per pip to risk.

As an example:
You have an account of say £2000
You are trading a 5 min time frame and the ATR(14) is at at 20 pips
You wish to risk no more than 2% of your account = (0.02 x 2000 = £40 Total Risk)

Then the amount you risk per pip = Total Risk / ATR(14) = £40 / 20 = £2 per pip

Of course if the trade moves in your favour then you can move your stop as quickly as possible to breakeven.


Paul