Stop Loss Strategies

techMark

Junior member
16 0
This thread is intended for the exchange of ideas on how to use stop losses effectively and profitably.

For me they are both my friends that save my bacon and my enemies that rob me of my well-deserved profits. I’m trading e-mini s&p and sometimes e-mini nas if I think it will produce a bigger move. My trading strategy is a basic old-fashioned one based on S/R levels, major trend lines and a bunch of indicators. I try to take a position at points where I’m expecting a reversal or continuation. I always use an automatic stop immediately and set it fairly tight (between 2 and 5 ticks depending on how good my entry is). I’m prepared to be stopped out and reposition 2, 3 or even 4 times in order to be on board for a decent move. If I’ve not made a successful entry by then I accept my analysis is wrong and I’m licking my wounds.

This strategy inevitably involves a lot of top and bottom calling which is a dangerous game of course, but I’m getting quite good at it and I’m often in right at the very beginning of a move.

Back to stop losses. Having made the perfect entry I’m anxious not to make a loss and tend to move my stop as soon as possible to lock in enough profit to cover the commission on this trade at least. I may be sitting on a couple of points + commission loss from previous failed entries and want to recover this too, which a good move would make and more. Quite often I can be stopped out at this point because I’ve been too quick to lock in the break-even trade. I’m on the sidelines and need to reposition again.

Once moving, I keep my stop a couple of ticks outside the most recent short term S/R level. Greed usually forces me to be more aggressive and often I will progressively move the stop as the trend develops keeping it a couple of ticks outside of my trend line. Quite often a mid trend pullback can just fire my stop as a few trades fake out the trend. Out again and missing out on the rest of the move. Very frustrating considering I was there at the very beginning.

What do I know?

1) Stops are good and bad
2) Taking a position too early and gets you stopped out using a tight stop
3) Perfect timing is crucial when using a tight stop loss strategy
4) Quickly locking in a break-even trade can get you out at the worst possible moment
5) Getting stopped out mid trend is really bad news – you may not be able to get back in for the same or better price
6) If you get your repositioning wrong, rather than jumping back on you may take a few ticks of loss
7) A stop guarantees you will not get the whole of a move in your pocket.

My main problem is in using stops, which allow a position to develop its maximum potential. All a question of experience I suppose. Please feel free to add any wisdom/criticism either positive or negative.
 

ChartMan

Legendary member
5,580 46
How about using a smaller stake size? Overall, sure, this reduces your total dollars profit. What it does do is enable you to widen your stops a bit, and allows you to be less stressed when there is a small pullback in the price once you are into profit. Think about a strategy that would allow you to add to the position just after a pullback,once you are certain that there is more to come. Once you head towards an estimated target, consider selling half your profit. This may cover all costs and give you a bit of real profit. You may then feel more comfortable letting the remainder run for much more than you otherwise might...That may be where you find the "cream" of your profit.
As allways, advice is free and easy. Finding a way to implement it is a whole different ball game.
You're not alone. Time and again, a lot us us DOW traders get out far too quickly, missing the cream.
 

Hughmac

Member
64 3
I use a similar strategey to sb the Dow and have exactly the same experience with stops!

I usualy now set my stop just below/above a recent s/r level then move it up/down to my entry point if i have judged the direction correctly.

The key is judging if the momentum will take the price past my entry point sufficiently to allow me to move my stop to that level.

If achieved then I can relax and let the trend run its course without worrying about a loss if I've got it wrong.

I've noted on a few sites that some traders use the parabolic indicator to set stops as the trend develops.

I'm investigating this at the moment but havn't yet traded on it.
I might do so this week to see if there is any benefit in using it.

cheers

Hugh
 

FTSE Beater

Experienced member
1,518 4
Hi TechMark.

I just thought I would throw my thoughts in for good measure. :)

Your inital stop should be placed at the point, where if it gets hit, you know your entry was wrong. Ideally this shouldn't be too far away from the price action. If you're picking tops and bottoms, I don't think that this would be a problem.

As the price starts to run in your favour then the stop-loss should be further away from the action, to give the price room to manoeuvre. When the price approaches a support or resistance level, then this is the point to tighten the stop. If it goes straight through then that's great, but if it reverses then you can get out without too much of a loss.

Remember, a stop-loss isn't designed to make you money, it's designed to stop you losing money.

HTH
 

welshguy121

Junior member
45 2
cheers guy s for this thread i ve blown a 1000 pounds in the last 2 days buy placing my stop 2 far away and making the wrong desicion at the resistance oint i no i should wait for a clear move either way but greed got s the better of me in the last days i gotta stop doing it you ve all educated me a bit
cheers
 

anley

Senior member
2,730 229
cheers guy s for this thread i ve blown a 1000 pounds in the last 2 days buy placing my stop 2 far away and making the wrong desicion at the resistance oint i no i should wait for a clear move either way but greed got s the better of me in the last days i gotta stop doing it you ve all educated me a bit
cheers
With hindsight it was too far away.

But what if the market moved within 10 ticks of your stop but it didn't get filled and that trade turned out to be a great winner? In such a case you'd be patting yourself on your back thinking how clever you were to use a wide stop. You might even make a post here signing the praises of wide stops.

So it's only a mistake when you lose money, never a mistake when you profit, that's always down to how smart your analysis is.

Not having a go, just trying to make you think about the above.
 

ronblack

Active member
177 12
Never use a stop with a forex broker. They can widen the spread enough to hit it at anytime. Only uninformed beginners use stops.
 

wackypete2

Legendary member
10,229 2,053
cheers guy s for this thread i ve blown a 1000 pounds in the last 2 days buy placing my stop 2 far away and making the wrong desicion at the resistance oint i no i should wait for a clear move either way but greed got s the better of me in the last days i gotta stop doing it you ve all educated me a bit
cheers
jeez, the last post on this thread was 9 years ago. Th OP is probably living in the Caribbean with his trading riches by now. You couldn't find something more current??

Peter
 

COINMOUNTAIN

Member
53 1
Hi Wackypete2
Over here there is a tendency to use spreadbetting platforms with a 1 pip spread such as ig /etx
in general the larger the timeframe the greater the spread.
If it helps my general set up on scalping is as follows
Adjust stochastic to 72 on renentries going down so sell
28 on reentries going up for buys
I also use Pivot lines, major pyschological levels 00 and 50 and mark major support and resistance
if not around pivot lines.
I do not take every trade as i'm only looking for 20/30 pips a day and tend to trade the 5 minute chart.
Do not overtrade but do spend a fair amount of time watch the markets you like.
Experiment with different times frames
My parameters are as follows
5 min 11 pips stop
15 minutes 22 pip stop
30 minutes 30/50 pips stop not something i trade
The higher the timeframe the greater the stop its more about your own risk profile and what
you trade.
Do not bet/trade more than 1% to 2% of your bank on one trade and try to remain detached,
its something i have not completely mastered but am still trading 10 years on.
Having learnt the hard way, by all means demo trade if it helps but its not like winning/losing in real trades.
good luck and hope this is helpful advice
 
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