How Much Stop Loss You Set?

[spinola]

its about making money consistently its not about "I have so many posts under my belt"

hi , tar, And this is where Socrates would probably state, (and do not take these comments below personally , tar, this is the effect of socco being burnt into my memory )


But the making of the money is simply the by product of efficient traders, you see ? This by product is the result of the efficient trader executing his expertise over and over each day as he sets to work on the old bank note farm .

But the significance of the obvious probably escapes you even when it is in plain sight screaming at you . Now shoo! Go and sit in the corner with your dunce hat on and don't be so foolish again.



I hope I've done Socrates persona, a fair reflection in his absence




Cheers, tar !

I think Soc, to me anyhow, came across as a short term positional intra day trader .

 

[kimo'sabby]

Two time frames. Use the larger time frame to appropriate a target, and the smaller time frame to implement your stop.

Volatility range should be the primary gauge, and the account percentages worked into this.

 

[masonlee]

Hi everybody, thanks for the ideas.

So i think i should have tight stop loss when the volatility is small and have slightly larger stop loss when the volatility is high.

Now i saw that the volatility value (for M30 EURUSD) showing in my ATR indicator is range between 0.0005 to 0.0024, may i ask what ATR value is considered high volatility and what value is considered low volatility so i can set my SL accordingly?

 

[George A]

Hello,

Anybody can point me to the right direction on how to set my stop loss appropriately?

Quite many of the time when i place a larger stop loss, the price hit my large stop loss and end up heavy losses.

But when i place a small stop loss, the price seem like tend to hitting the stop loss line very frequently and i have to repeatedly place multiple orders with the same small amount of stop loss and toward the same trend for a currency pair. With small stop loss, even i catch the right trend for a certain pair and earn significant amount of pips but overall i still having negative profit because i have lost quite many pips from many small stop loss trades during the starting of the trend.

Can you give me some guideline on how to set a appropriate stop loss?

Appreciate your help.

Hello mason,
I will comment here from my OWN personal experience so far in this business.
When i trade i normally would NOT use more than 10 pips , and that is trading 15 mnt charts with profit targets of 20 to 50 pips .
Why are u experiencing losses with ur stops u want to ask again??? I WILL answer that for u , and the problem is, YOU do NOT enter the market at the right level .
The market run to certain system , and it runs to level , and unless u learn and master that , you will always have that problem .
I can often have a trade with no more than 5 pips even and the chance of that triggered is low , and it is because i have to somewhat mastered to a good level of accuracy market analyses and what they actually do swing after swing ,, and YES sometimes what i think they will do is NOT what they end up doing , BUT thats fine, small losses are acceptable , and yes , it is the losses that can chew into ur overall outcome financially as u r experiencing .
Anyway ,, please feel free to PM me IF you wish ,, and i am happy to run through with u and help u with what i know .
cheers,
George

 

[George A]

.

Such comments are only found in forums and seminars or youtube videos but in reality it is the furthest from the truth , its easy to make claims and give lectures but trading isn't about that , its about making money consistently its not about "I have so many posts under my belt" .

I agree 100%
Cheers

 

[Traderallen]

To OP,

I am in no way affiliated with Dan Gramza but while working in my previous prop trading role I was fortunate enough to attend a seminar by the aforementioned where he discussed the idea of calculating what he called a 'heat index' for your trading strategy.

To summarise, you would test your strategy out over 100 or so trades and work out whether there are distribution clusters of how many pips the trades went offside before turning a profit. You then have a statistically sound method for optimizing your stop-loss level.

You can also do this for profit targets and it is a method I think spoken about in one of the wizards books, or it might have been inside the house of money.

I found a link to a free PDF that covers the idea;
http://www.futuresindustry.org/downloads/Audio/Companion/Three-819.pdf

This is a perfect example of what I was referring to on another thread about where to go to learn how to trade. I would point out that I did not go to the link and read the PDF I'm just going on what was written here. I'm sure if you had time and resources to test all your trades every possible entry every possible exit combinations you eventually come up with the perfect statistical method for entry and exit however, the average Joe trader does not have the resources nor the time to do such calculations. Therefore in my opinion there is no sense in the average Joe trader cluttering his head with trying to learn all the possible combinations. For the average Joe trader to be profitable, you must keep his method simple.

 

[Splitlink]

.

With all due respect this is some BS here ! efficient traders ? get it right many many more times than they get it wrong ? what a load of .... , your hit rate has nothing to do with being efficient . This is a myth , yes tight stops may be helpful and useful for some trading styles , like locals who try or attempt to buy at the bid and sell at the ask their stops should be very tight 0-1 ticks , or like BO traders tight stops may be better for them , but in general tight stops is a killer and a retarded way to lose money , you cant be dead right on your entry price , you are a human you cant know for sure price turning points , so giving a room for error is not wrong and it has nothing to do with being an "efficient trader" you only hear about these traders on forums , what is an efficient trader anyway ?! .
Many issues will arise while using tight stops :
1- Emotions will kick in every time you are stopped out which leads to irrational decision : "re-enter , chasing ... etc " .
2-Tight stops means higher volume and frequent trades : everytime your stop is hit you will be looking for another setup which leads to paying the spread many times , example : swing trader 1 trade a week , spread paid 1-3 pips VS forums trader who dreams to make a living from daytrading by placing many trades a day to net the 20 points target a day ! so lets say at least 3 trades a day "usually its more" = 15 a week , spread paid 15-45 a week = 60-180 points a month 700-2000 points a year , good luck in making money that way some markets doesn't even move that much in a year ! Ofcourse this point is not valid if you are limiting yourself to few trades a month no matter what , but lets get real !
3- Spread to stop distance ratio : lets say you use a tight SL of 10 points and you pay 2 pips in spread/slippage , so the ratio is 20% , that is exactly like trading with 100 pips SL and paying 20 pips in spread ! Is that ok ?
4- When you trade with a tight SL you will tend to trade larger and with more leverage , common sense , so if you used to risk $100 in a swing trade with a 100 pips SL , you will most likely risk the same amount when you trade with a tight SL so that's $100 risk with 10 pips SL = 10 times the size , the risk is the same $100 or 1% right ? no it isn't , cuz price may gap beyond your 10 pips SL after sudden news "which happens more often than you expect " , and your stop wont be triggered at your desired price so you will not just lose your 1% risk limit , it could be easily 10 times that amount .

Such comments are only found in forums and seminars or youtube videos but in reality it is the furthest from the truth , its easy to make claims and give lectures but trading isn't about that , its about making money consistently its not about "I have so many posts under my belt" .

I have been an advocate of tight stops for a long time, mainly for the obvious reasons but , let's face it, all stops, far and near, are just as bad, IMO. I have put a stop 40 points away, relaxed, waited and wasted a lot of time and been stopped out, eventually. I think that I hate the wasted time just as much as losing the money! I do not want to be in a trade that wanders around all morning (like Socrates' posts) trying to make up its mind what to do, so nowadays, I use a more distant stop, in case I get a crash, but close the trade manually. As far as ATR is concerned, I have an issue with "average", which means half of the readings are above average, so the stop risk is quite possible, IMO. I look at double the average- If that is not too far away, I use it. Otherwise I put the stop above the average, somewhere.

 

[0007]

........... I'm sure if you had time and resources to test all your trades every possible entry every possible exit combinations you eventually come up with the perfect statistical method for entry and exit however, the average Joe trader does not have the resources nor the time to do such calculations. Therefore in my opinion there is no sense in the average Joe trader cluttering his head with trying to learn all the possible combinations. For the average Joe trader to be profitable, you must keep his method simple.

Is it because "the average Joe trader does not have the resources nor the time [or the will?] to do such calculations." that he isn't profitable? I absolutely agree your point of keeping everything simple, but I believe that you have to kiss an awful lot of research frogs before you find your Prince Charming of simplicity!

 

[Splitlink]

Is it because "the average Joe trader does not have the resources nor the time [or the will?] to do such calculations." that he isn't profitable? I absolutely agree your point of keeping everything simple, but I believe that you have to kiss an awful lot of research frogs before you find your Prince Charming of simplicity!

The "keeping things simple" routine, for me, means reading price charts. Once one goes into too much calculation it gets tedious. More so, because I have yet to read real evidence of "research frogs" being any more successful than me.

There are a lot of posters who use sophisticated data but, lets face it, even the most respected among us, as soon as they start live posting, make terrible mistakes then go onto the next trade as if nothing happened.

 

[new_trader]

but in general tight stops is a killer and a retarded way to lose money ,

WTF!? How is it any more retarded that losing money with wide stops?

you cant be dead right on your entry price , you are a human you cant know for sure price turning points ,

Exactly, so you keep losses to a minimum. The better you get, the tighter the stops become. Why not try it before trashing it.

so giving a room for error is not wrong and it has nothing to do with being an "efficient trader" you only hear about these traders on forums , what is an efficient trader anyway ?! .

An efficient trader is one that understands stops have zero to do with market gyrations and everything to do with skill and proficiency.

Many issues will arise while using tight stops :
1- Emotions will kick in every time you are stopped out which leads to irrational decision : "re-enter , chasing ... etc " .
2-Tight stops means higher volume and frequent trades : everytime your stop is hit you will be looking for another setup which leads to paying the spread many

Really, so the wider the stop, the fewer emotions kick in? That's your magic formula for trading?

With all due respect it is utter BS to say "Tight stops means higher volume and frequent trades"...you are speaking from your ass not from experience. Why not ask ME, someone who does trade with tight stops what it is like instead using artistic license.


Everything you've written is spurious.

 

[darktone]

Hi everybody, thanks for the ideas.

So i think i should have tight stop loss when the volatility is small and have slightly larger stop loss when the volatility is high.

Now i saw that the volatility value (for M30 EURUSD) showing in my ATR indicator is range between 0.0005 to 0.0024, may i ask what ATR value is considered high volatility and what value is considered low volatility so i can set my SL accordingly?

Check this example, this i why i prefer to manage loss rather than use hard stops.
Imo, there is no knowing, no formula, no correct place to put a stop.

Cheers
D

 

[Shakone]

.

With all due respect this is some BS here ! efficient traders ? get it right many many more times than they get it wrong ? what a load of .... , your hit rate has nothing to do with being efficient . This is a myth , yes tight stops may be helpful and useful for some trading styles , like locals who try or attempt to buy at the bid and sell at the ask their stops should be very tight 0-1 ticks , or like BO traders tight stops may be better for them , but in general tight stops is a killer and a retarded way to lose money , you cant be dead right on your entry price , you are a human you cant know for sure price turning points , so giving a room for error is not wrong and it has nothing to do with being an "efficient trader" you only hear about these traders on forums , what is an efficient trader anyway ?! .
Many issues will arise while using tight stops :
1- Emotions will kick in every time you are stopped out which leads to irrational decision : "re-enter , chasing ... etc " .
2-Tight stops means higher volume and frequent trades : everytime your stop is hit you will be looking for another setup which leads to paying the spread many times , example : swing trader 1 trade a week , spread paid 1-3 pips VS forums trader who dreams to make a living from daytrading by placing many trades a day to net the 20 points target a day ! so lets say at least 3 trades a day "usually its more" = 15 a week , spread paid 15-45 a week = 60-180 points a month 700-2000 points a year , good luck in making money that way some markets doesn't even move that much in a year ! Ofcourse this point is not valid if you are limiting yourself to few trades a month no matter what , but lets get real !
3- Spread to stop distance ratio : lets say you use a tight SL of 10 points and you pay 2 pips in spread/slippage , so the ratio is 20% , that is exactly like trading with 100 pips SL and paying 20 pips in spread ! Is that ok ?
4- When you trade with a tight SL you will tend to trade larger and with more leverage , common sense , so if you used to risk $100 in a swing trade with a 100 pips SL , you will most likely risk the same amount when you trade with a tight SL so that's $100 risk with 10 pips SL = 10 times the size , the risk is the same $100 or 1% right ? no it isn't , cuz price may gap beyond your 10 pips SL after sudden news "which happens more often than you expect " , and your stop wont be triggered at your desired price so you will not just lose your 1% risk limit , it could be easily 10 times that amount .

Such comments are only found in forums and seminars or youtube videos but in reality it is the furthest from the truth , its easy to make claims and give lectures but trading isn't about that , its about making money consistently its not about "I have so many posts under my belt" .

If a trader has problems controlling himself so that he jumps in, chases, overleverages, take trades he shouldn't etc. then he will struggle whatever size stops he has. So most of what you've said there has little to do with tight stops or large stops and more to do with discipline.

I don't follow why smaller stops would make you more emotional or irrational. Not everyone is built the same emotionally, but to me being out of a trade is less emotional and it is easier to make clear-headed decisions than being in a trade that's losing. Small and quick losses are far less damaging than large and long-winded losses.

There is a point at which you recognise you are probably wrong or are better off out of the trade. Whatever that point may be, would you encourage a trader to stay in anyway? If not then you are encouraging a trader to get out as soon as he or she knows they are wrong. And if a trader can spot that within 10 pointsor within 5 minutes, then they should get out within 10 points or 5 minutes. Why let it get worse? If a trader needs more movement to spot they are probably wrong, then they may have a larger stop. But there seems little advantage to having a larger stop for the sake of it.

 

[I'vereadthemall]

This is a perfect example of what I was referring to on another thread about where to go to learn how to trade. I would point out that I did not go to the link and read the PDF I'm just going on what was written here. I'm sure if you had time and resources to test all your trades every possible entry every possible exit combinations you eventually come up with the perfect statistical method for entry and exit however, the average Joe trader does not have the resources nor the time to do such calculations. Therefore in my opinion there is no sense in the average Joe trader cluttering his head with trying to learn all the possible combinations. For the average Joe trader to be profitable, you must keep his method simple.

What a strange attitude. You make it sound as if the average trader has a choice. You either do what the not so average traders do and make money, or you do as the average traders do and lose money.

If your advice is to keep it simple for the average trader, wouldn't it be better to say this: risk 1R, 30 pip trailing stop - entry method toss a coin.

If you haven't got the time and resources to do a simple analysis of some trades you have placed, you are never going to be a consistently profitable trader. Better off going to the casino and not cluttering your head. You bet on red or you bet on black.

Trillions of dollars worth of financial assets change hands every day and if you think that you will beat the smartest guys in the world by being lazy, I hate to say it, but you are living in denial.

What I proposed isn't even complicated, it just requires a bit of work and passion. It is this lazy attitude that perpetuates the entire forex vending industry. Too many folks think trading should be easy!

Why aspire to be average for simplicities sake?

 

[Traderallen]

What a strange attitude. You make it sound as if the average trader has a choice. You either do what the not so average traders do and make money, or you do as the average traders do and lose money.

If your advice is to keep it simple for the average trader, wouldn't it be better to say this: risk 1R, 30 pip trailing stop - entry method toss a coin.

If you haven't got the time and resources to do a simple analysis of some trades you have placed, you are never going to be a consistently profitable trader. Better off going to the casino and not cluttering your head. You bet on red or you bet on black.

Trillions of dollars worth of financial assets change hands every day and if you think that you will beat the smartest guys in the world by being lazy, I hate to say it, but you are living in denial.

What I proposed isn't even complicated, it just requires a bit of work and passion. It is this lazy attitude that perpetuates the entire forex vending industry. Too many folks think trading should be easy!

Why aspire to be average for simplicities sake?

First, I'd like to point out that with my "hedge fund" up over 40% for the year and with my Forex account being up over 50% in just the last quarter I'd venture to say I'm probably one of the few consistently profitable traders that post here.

The point being I know what works I do it every day. It's not about being lazy it's about what works and what doesn't work in a real-life environment. Keeping with Forex there are two main methods that I use. One is scalping which is well documented on this form. The other is more for longer term trading. For this method I molded together a plan from another Forex trader with my own personality. From this trader I learned how to set my stops outside of volatility which has greatly increased my profitable trade to loss ratio. The interesting thing is we discussed how to correctly identify volatility using two methods that are quite complicated but highly accurate then showed me a quick and dirty method that gets you close enough. Because the reality is if 85% of my trades are profitable using the quick method, do I really need to spend more time and resources for 87 to 90% wins.
So to answer your question to I think I can beat the smartest guys in the world by being lazy? No, I do it by working smarter.

 

[Splitlink]

WTF!? How is it any more retarded that losing money with wide stops?



Exactly, so you keep losses to a minimum. The better you get, the tighter the stops become. Why not try it before trashing it.



An efficient trader is one that understands stops have zero to do with market gyrations and everything to do with skill and proficiency.



Really, so the wider the stop, the fewer emotions kick in? That's your magic formula for trading?

With all due respect it is utter BS to say "Tight stops means higher volume and frequent trades"...you are speaking from your ass not from experience. Why not ask ME, someone who does trade with tight stops what it is like instead using artistic license.


Everything you've written is spurious.

! agree with you on this one, it does not seem sensibkle to stay in a bad trade and my experience tells me, 8 out of 10 times, that if a trade goes beyond one's perception of what a tight stop is (we all have different ideas on what that would be) then, as sure as hell, it will keep going. Better to get it over and done with and have that margin to come in again.

I favour 1 point spreads (I spreadbet) for that reason, because if you cannot get it right you have to watch the costs.

 

[barjon]

! agree with you on this one, it does not seem sensibkle to stay in a bad trade and my experience tells me, 8 out of 10 times, that if a trade goes beyond one's perception of what a tight stop is (we all have different ideas on what that would be) then, as sure as hell, it will keep going. Better to get it over and done with and have that margin to come in again.

I favour 1 point spreads (I spreadbet) for that reason, because if you cannot get it right you have to watch the costs.

Yes, I agree with NT as well (but not his ott rude way of putting it ). If, for example, you are trading a momentum break out in the expectation that the momentum leading up to the break will continue then you find out pretty quickly whether your expectation is right.

If it's not, then the rationale behind your trade is no longer valid and if you choose to stay in then you are in a different ballgame - one that probably lends more to "hope" and "might" than your trade rationale.

 

[masonlee]

! agree with you on this one, it does not seem sensibkle to stay in a bad trade and my experience tells me, 8 out of 10 times, that if a trade goes beyond one's perception of what a tight stop is (we all have different ideas on what that would be) then, as sure as hell, it will keep going. Better to get it over and done with and have that margin to come in again.

I favour 1 point spreads (I spreadbet) for that reason, because if you cannot get it right you have to watch the costs.

I agree too, i feel that once i have suffer heavy losses (50% of SL) in a trade with wide stop loss, it tend to consume the remaining 50% and eventually hit the wide SL.

 

[Splitlink]

I agree too, i feel that once i have suffer heavy losses (50% of SL) in a trade with wide stop loss, it tend to consume the remaining 50% and eventually hit the wide SL.

Where to put stop losses is a problem, for most of us. I am never satisfied and find it better to be out of the trade

 

[gmarquis]

Another method is to exit the trade at the very earliest moment that the reason for entering the trade is no longer true - for example if you enter Short because an indicator goes "below 30" but before the measured/averaged profit target is reached the indicator should return above 30 then trade can be exited for safety without waiting for a specific amount of points to be hit by the preset Stop.

 

[aliasentric]

I haven't read all of the comments here, but I'll add my 2 cents. Interestingly, I just posted a comment about setting SLs in another thread today. I think it's a common point of frustration with all traders. I've gone through a difficult time learning how to set SLs correctly. Here's what I've learned.

Enter trades that are near support/resistance levels. And always trade away from these levels. Set your SL "on the other side" of the support/resistance level. Determine your lot size according to how much that SL would cause you to lose given the lot size you chose. Give the trade "room". Don't put SL too close to the support/resistance, as it might pierce that level, then bounce right back.

This is an art. You cannot explain exactly how to do this in a forum thread. One really has to know how to read price action. It's not about just knowing how to identify bullish and bearish candles/bars. You have to know how to see the big picture, which will allow you to identify the key support/resistance levels and how the price should react with them.

I believe the above is probably the most critical element in trading. For example, I heard from a "mentor" that the GBP/USD was "breaking out" of resistance, and was headed "up" several days ago. Well I looked at the pair and saw it was headed right into another resistance level. So, I waited to see how the price reacted, then went short, and gained 10% on my account in one day. I could have done even better if I would have stayed in the trade longer. Of course GBP/USD may eventually bounce and go back up. But unless it clears that resistance level it just bounced off of, and clearly rejects it on the other side, it will either reverse or continue in a range.

Same thing happened to GBPAUD for the past few months, then it finally broke out, but now it's hovering around resistance again.

And… You cannot define a risk ratio and always stick with it, i.e. 2:1, 3:1 etc. Your risk ratio should depend on what a realistic SL and TP is, which will depend on where the SR levels are in relation to the price. It will always very. In addition, sometimes a trade just won't make sense if the SR levels don't line up with an acceptable risk/reward. Which brings us to another important skill to learn as a trader - Know when NOT to trade...