should the stop be greater than the limit ?

Pat494

Legendary member
14,625 1,577
Looks like a simple question, but is it.
Say one has a stop of 2 points on the S&P 500 and a target of 2 points. Nicely balanced you might say. Then we get to the what if.......

what if the stop is 2 points and the taerget 3 or 4 points. Fewer winning trades probably but more points when successful.

what are your thoughts on this tricky question ?
 

BeginnerJoe

Senior member
3,329 350
Never letting your winners run seems suicidal. I just read hari-kiri prompted by Mr Charts in another thread. Hence the thought popping up.
 

Jason101

Experienced member
1,372 215
Re: should the stop be greater than the limit ?

Erm, … What about if you used your win (at the increased odds) as a base to pyramid??
 

wackypete2

Legendary member
10,229 2,055
Never letting your winners run seems suicidal. I just read hari-kiri prompted by Mr Charts in another thread. Hence the thought popping up.

During choppy markets letting your winners run is exactly suicidal. You will get lots of losses or BE. The real trick is knowing whether the market is currently trending or consolidating. Sounds easy!

Peter
 

wackypete2

Legendary member
10,229 2,055
Just to add, some traders use counter trend methods. Trying to let winners run with reversal type of trades ranks just below martingale trading as a fast way to lose money.

Pat, IMO opinion using the exact stop and limit on every trade regardless of the ratio is not the best way to go. You need to adjust according to the volatility of he market. What works best for me is small stops and small wins @ a R/R of approximately 1:1.5 ratio. This has done well for me in many different market conditions. Of course taking a small win and then watching the market continue in your direction for another 100 pips can sometime be just as depressing as a small loss :)

Peter
 
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Jason101

Experienced member
1,372 215
Just to add, some traders use counter trend methods. Trying to let winners run with reversal type of trades ranks just below martingale trading as a fast way to lose money.

Pat, IMO opinion using the exact stop and limit on every trade regardless of the ratio is not the best way to go. You need to adjust according to the volatility of he market. What works best for me is small stops and small wins @ approximately 1.5:1 ratio. This has done well for me is many different market conditions. Of course taking a small win and then watching the market continue in your direction for another 100 pips can sometime be just as depressing as a small loss :)

Peter

Peter, is the 1.5 the stop or the win?
 

Jason101

Experienced member
1,372 215
D'oh, I typed it in backwards :eek:
.
Fixed it :)
1.5 is the win (y)

Peter

I do the same for some reason I always write the R:R the wrong way round.
I think it's because the bigger number first flows off the tongue more easily.
 
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Pat494

Legendary member
14,625 1,577
some interesting replies. Thanks guys. I will try your ratio Peter and see how it goes. Surprised noone mentioned trailing stops tho.

Sometimes I use the bollingers to make as st and tp. With mixed results. The advantage of those is that stops and target prices are put wider in volatile markets.
 
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Jason101

Experienced member
1,372 215
What suits me Pat, is to open two positions with the same stop (the distance varies from trade to trade). But I set one position with a 1:1 (to tp), and leave the other to trail as long as the trend continues.

This really shows that the stop is as individual as the trader. This method suits me because I aim for multiple low cost (short stops) entries into long term trends.

It would not suit you because you are a short term scalper.

It also suits me because I become scared of losing money on a trade, when the shorter term time frame swings price back down near my stop. So my stop loss strategy is designed to overcome my fears with the knowledge that my stop being hit would only result in a b/e.

This may not suit for you, because you may not have this fear. You may well think ‘What a wasted part of a trade!’ and for you, you would be right.

(P.s. I also use Peter’s 1:1.5 for short term mean reversion trades if I am bored while waiting for my dallies, for me this is because going for anything higher than 1:1.5 would give me less wins and I would get upset, when this type of trade is just add hock for fun.)
 

bbmac

Veteren member
3,584 788
What is more important than whether a stop (risk) be greater than the limit (target/reward) is expectancy over any given sample size of trades you take, and it follows that you should always aim for a positive expectancy - the higher the better. (Simple Expectancy = total pip gain or loss in the sample divided by total number of trades in the sample = expectancy/trade.) If you have a high strike rate (ie winning trades as a % of total tradesd) then having a stop greater than the limit may not be as much of a problem than that experienced with a lower strike rate. Expectancy is also generally more important than strike rate. The answer in short text is that it is relative to the edge you are trading and the performance metrics you are achieving with it, although letting winners run and cutting losses can only enhance performance over time.

G/L
 
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Vasco da Banana

Established member
699 121
The only method that works consistently for me with shorter TFs is to use stops and limits tailored to the particular market and its behaviour when you're in the trade. Whatever the theoretical RR, using a static stop or one close enough to be triggered by 'noise' is doomed to failure.
 
 
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