How can we use stop loss effectively for more profitable trade?

[Traderallen]

Today was a prime example of why most stoploss methods that are taught by the gurus and repeated over and over in trading books doom traders to fail. I would be willing to bet they're were many traders wiped out today with the wild volatility of the euro. And why those who learn to trade like the pros on Wall Street are still in the money on their trades. If you trade intraday chart and your stops do not include the daily volatility you're doomed to blowing out your account in my opinion.

 

[NVP]

Today was a prime example of why most stoploss methods that are taught by the gurus and repeated over and over in trading books doom traders to fail. I would be willing to bet they're were many traders wiped out today with the wild volatility of the euro. And why those who learn to trade like the pros on Wall Street are still in the money on their trades. If you trade intraday chart and your stops do not include the daily volatility you're doomed to blowing out your account in my opinion.

so use big stop losses ............right ?

N

 

[Traderallen]

No that's not necessarily the case. Depending on the time horizon for your trading method it may be best to go with a wider stop and smaller position size. As I'm sure you know the key to finding winning trades starts with noticing a viable pattern or set up, then marking where you're going to be wrong ie: your stop. Checking for overhead resistance (is there room for your trade to advance before running into resistance). Then looking for a maximum entry point. And adjusting your position size to not risk more than 1%. If your stoploss is inside the daily volatility you are likely to just get whipsawed out you may be better off skipping that set up and waiting for the daily market to get closer to a support area where your stop is closer to being outside of volatility.

If the standard deviation on the daily chart is 200 pips and you're already 175 pips off of previous support the odds of a successful bullish intraday trade with eight 10,20, or 30 pips stop are not very good.
This applies to all trading except scalping which is akin to tape reading.

 

[MRDW]

I want to ask to every traders here in this forum on how we can use stop loss strategy more effectively to make our trade more beneficial. I know stop loss prevents us from huge loss by automatically closing our trade before our whole account balance goes to nil.

So i want to know if is there any other ways of using stop loss so that we can maximum benefits as possible as we can.:smart:

Stop losses should be fairly large in my opinion, an ultra tight stop loss will usually degrade an otherwise good trading system.

So what to do if a large stop loss being triggered means you lose a large chunk of your account on a single trade? Use less leverage. One of the mistakes that traders seem to make again and again is over leveraging.

 

[MJGrae]

I use my stop loss as a way of structuring my trade from the very beginning. When I develop a strategy, I collect an inordinate amount of data around every single set-up/entry that I find during a certain time period. From the entry signal to the exit signal I will track how many ticks against me a trade will go before it starts to show a profit.

I take all of those data points and make a histogram, making it easy to see where the most heat settles before turning back into my favor. I will use that as a way of determining what the probability of my trades being profitable should be.

Say 60% of my entries don't trade more than 50 pips against me before turning profitable. If I have a favorable risk/reward ratio (edge) then I would set my stop at say, 54 to allow for a little slippage and sleep at night knowing that 80% of my trades should be profitable, and that I have an edge in my trades.

If, however, I had to put my stop loss at 600 pips in order to get a 90% probability of being in profit and my profit target was only 50 ticks, then you certainly wouldn't want to be in the trade.

There's just some quick examples of how I use stop losses.

 

[forexanalyst]

Avoid slippage on stop-loss

Your stop-loss should be at the point at which your original hypothesis no longer holds.

Nice to have them guaranteed too:

Trade with guaranteed Stop-Loss - YouTube