Hello,
I want to request your opinion about the Stop Loss implementation. I went through the various posts on FF,various opinions include from having Tight S/L, Mental Stops, Wide Stops to No Stops etc....As expected there is no one size fit all.
Furthermore this is what i understood from the various posts:
Market couldn't careless for an individual's risk appetite and in some sense looking for a certain Risk:Reward Ratio is also tantamount to imposing our will on the market. Rather the market will decide what it wants to give. The stops need to be set in accordance to market behavior unlike an arbitrary number like 50 Pips etc...
What i am contemplating is having a Hard Stop and the system i am looking to test is a trend trading system on higher time frames specifically on 4HR and sometimes on Daily. Basically Swing Trading.
Advise/Correct me as you see fit:
1. I feel using Volatility Based Steps{ Based on Average True Range-ATR} would be dynamic and taking the market behavior into consideration. I am thought of using previous S/R levels, for some reason i feel it is a potential area for S/L's to be clustered and don't want to be caught in a cascading effect. If there is any other method you would recommend, please feel free to do so.
2. Period of the ATR for Stop Loss: I haven't zeroed on a look back period. Thought of going with the default of 14 Periods or shorter like 8 periods , then i realized each Forex session has it's own volatility{ Asian-Low, London-High}. It's like a series of low volatility bars clubbed with medium and high volatility bars. May be the 14 periods may not do justice/reflect the reality.
One idea i thought to resolve was using 3/4 ATR's calculations:
64 periods for longer
32 Period for intermediate
16 Period and 8 Period for the near term
As long as they are in confluence, i will use the ATR calculation and if there is huge discrepancy, go with the highest Value?
What number of periods would you recommend?
3. Multiplier of the ATR stop: Opinions vary from 1 ,3,6.... etc...
My observation so far, Forex has good trends where the odds of the trend continuing are higher than a reversal. prior to continuing in the original direction, sometimes there is considerable move in the opposite direction. For me the key consideration is to be to right and allow plenty of room for the trade to breathe i.e. once after entering the pullback the ability to withstand any shake off, S/L hunting, etc...
I am willing to consider wide stops like 100-500 Pips.
What would you recommend:
1. In terms of ATR multiplier? {for 4HR and Daily}
2. In terms of Number of Pips? {For 4HR and Daily}-{Have the S/L in terms of Number of Pips-This is to have an idea, so i can compare with the ATR value}
I understand that to accommodate wide stops, Accordingly i would need to drastically reduce the position size and mapping with the Risk% per trade...
4. News Releases:
Since trading on 4HR, i feel it is not viable to exit the position before every high impact news...I also want to the S/L to withstand any potential temporary whipsaw that is caused by High impact news...
I realize that for you to give an accurate assessment depends on many other factors etc... I just want to have a back of the envelope calculations if you will to address the S/L to get it going...
Thanks in advance...
I want to request your opinion about the Stop Loss implementation. I went through the various posts on FF,various opinions include from having Tight S/L, Mental Stops, Wide Stops to No Stops etc....As expected there is no one size fit all.
Furthermore this is what i understood from the various posts:
Market couldn't careless for an individual's risk appetite and in some sense looking for a certain Risk:Reward Ratio is also tantamount to imposing our will on the market. Rather the market will decide what it wants to give. The stops need to be set in accordance to market behavior unlike an arbitrary number like 50 Pips etc...
What i am contemplating is having a Hard Stop and the system i am looking to test is a trend trading system on higher time frames specifically on 4HR and sometimes on Daily. Basically Swing Trading.
Advise/Correct me as you see fit:
1. I feel using Volatility Based Steps{ Based on Average True Range-ATR} would be dynamic and taking the market behavior into consideration. I am thought of using previous S/R levels, for some reason i feel it is a potential area for S/L's to be clustered and don't want to be caught in a cascading effect. If there is any other method you would recommend, please feel free to do so.
2. Period of the ATR for Stop Loss: I haven't zeroed on a look back period. Thought of going with the default of 14 Periods or shorter like 8 periods , then i realized each Forex session has it's own volatility{ Asian-Low, London-High}. It's like a series of low volatility bars clubbed with medium and high volatility bars. May be the 14 periods may not do justice/reflect the reality.
One idea i thought to resolve was using 3/4 ATR's calculations:
64 periods for longer
32 Period for intermediate
16 Period and 8 Period for the near term
As long as they are in confluence, i will use the ATR calculation and if there is huge discrepancy, go with the highest Value?
What number of periods would you recommend?
3. Multiplier of the ATR stop: Opinions vary from 1 ,3,6.... etc...
My observation so far, Forex has good trends where the odds of the trend continuing are higher than a reversal. prior to continuing in the original direction, sometimes there is considerable move in the opposite direction. For me the key consideration is to be to right and allow plenty of room for the trade to breathe i.e. once after entering the pullback the ability to withstand any shake off, S/L hunting, etc...
I am willing to consider wide stops like 100-500 Pips.
What would you recommend:
1. In terms of ATR multiplier? {for 4HR and Daily}
2. In terms of Number of Pips? {For 4HR and Daily}-{Have the S/L in terms of Number of Pips-This is to have an idea, so i can compare with the ATR value}
I understand that to accommodate wide stops, Accordingly i would need to drastically reduce the position size and mapping with the Risk% per trade...
4. News Releases:
Since trading on 4HR, i feel it is not viable to exit the position before every high impact news...I also want to the S/L to withstand any potential temporary whipsaw that is caused by High impact news...
I realize that for you to give an accurate assessment depends on many other factors etc... I just want to have a back of the envelope calculations if you will to address the S/L to get it going...
Thanks in advance...