Given a particular trading style/system it is unfortunately the case that the tighter your stops the more losses you will have. This is not necessarily a problem cos tighter stops mean more leverage and the winners therefore make more money. But what is really worth bearing in mind is that tight stops can make a profitable system unprofitable.
One of the few concrete facts about financial markets is that price movement is proportional to the square root of time. You will get twice the movement over four times the time period - on average. Read Mandlebrot if you want to know more.
What this means in practice is that changing a twenty pip stop to a forty pip stop actually quadruples the time to get stopped out, during which time you can better gauge whether your initial assumptions were correct or not. Of course it means leverage is less, but it definitely does not mean that your system/method will be less profitable - because you may have more winners.
I only trade daily bars - for various reasons, although I trade full time (if you can call it that). My method is based around cycles - so it is mainly time based. The problem with cycles is that they only need to be a few days out and the market may move against you quite a lot. So my stops are (take a deep breath) around 6% of the instrument price. These are very profitable systems. If I make the stop two per cent the systems become unprofitable.
I don't have any current (verifiable) forex trades I can demonstrate this with, but I do have a DAX trade that went 5% against me just a few days ago - but is now profitable - just to illustrate the point. The chart is below. An audit trail of the recent trades is on another forum if anyone is interested.
One of the few concrete facts about financial markets is that price movement is proportional to the square root of time. You will get twice the movement over four times the time period - on average. Read Mandlebrot if you want to know more.
What this means in practice is that changing a twenty pip stop to a forty pip stop actually quadruples the time to get stopped out, during which time you can better gauge whether your initial assumptions were correct or not. Of course it means leverage is less, but it definitely does not mean that your system/method will be less profitable - because you may have more winners.
I only trade daily bars - for various reasons, although I trade full time (if you can call it that). My method is based around cycles - so it is mainly time based. The problem with cycles is that they only need to be a few days out and the market may move against you quite a lot. So my stops are (take a deep breath) around 6% of the instrument price. These are very profitable systems. If I make the stop two per cent the systems become unprofitable.
I don't have any current (verifiable) forex trades I can demonstrate this with, but I do have a DAX trade that went 5% against me just a few days ago - but is now profitable - just to illustrate the point. The chart is below. An audit trail of the recent trades is on another forum if anyone is interested.
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Irregular