Let's say you are in a trade...
Price reaches a volatile point, for example 1.6000 on the EUR/USD, would it be wiser to tighten your stop in order to prevent losing a lot of profit quickly in case a break downward, or would it be wiser to widen your stop in order to stay in the trade and avoid whipsaws for a potential upward break?
I know the answer will probably depend on one's personal trading style and method, however I would like to hear some input from people about how they handle this. Any thoughts?
I personally feel that you have to calculate the probability of an upward break occurring and you also have to calculate the potential profit that could be made if you stay in the trade for that scenario. Then you must calculate the probability of a downward break occurring and the loss you would take. And then determine if over 20 trades whether or not widening or tightening your stop would be more profitable. But doing all of these things is not an exact science, it is quite subjective, what methods do people use to make these kinds of calculations?
Price reaches a volatile point, for example 1.6000 on the EUR/USD, would it be wiser to tighten your stop in order to prevent losing a lot of profit quickly in case a break downward, or would it be wiser to widen your stop in order to stay in the trade and avoid whipsaws for a potential upward break?
I know the answer will probably depend on one's personal trading style and method, however I would like to hear some input from people about how they handle this. Any thoughts?
I personally feel that you have to calculate the probability of an upward break occurring and you also have to calculate the potential profit that could be made if you stay in the trade for that scenario. Then you must calculate the probability of a downward break occurring and the loss you would take. And then determine if over 20 trades whether or not widening or tightening your stop would be more profitable. But doing all of these things is not an exact science, it is quite subjective, what methods do people use to make these kinds of calculations?