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How you place your stop loss?

  • #1
  • First Post: Jan 25, 2009 12:57am Jan 25, 2009 12:57am
Hi All,

I have been trading demo for quite some time, I am quite happy with my current trading system except on the stoploss where I totally got no good strategy on placing a stop loss. I realized that a good stoploss is very important to trading and it is useful to have one to protect the profit you are having and even worst it shall stop you from lossing more!

I would like to ask if anyone here to share their advise. I hope that we use this thread to discuss solely on stoploss and how you manage your stop loss.

Good Day!
  • #2
  • Jan 25, 2009 2:07am Jan 25, 2009 2:07am
Hi,

based on your equity, and pair you trade (average daily range) you can

Ranging Markets:
Small TF = Small SL / 5Min = 10 Points, only your are a pro trader and see the reverse correctly
Large TF = Large SL / 4H = 100 Points , if to small you are always stopped out!

Tranding Markets:
Small TF = Small SL / 5Min = 50 Points
Large TF = Large SL / 4H = 500 Points , if to small you are always stopped out!

Examply GBP/JPY
Daily Average Range = 400-500 Points
Market is Trending
TF 5Min = SL 50 Points
TF 4H = SL 500 Points

Personal, I trade 4H TF's, therefore I need a big equity if the trend is against me, also big equity is available if would trade 15 pairs or more at the same time - further i trade a manual martingale system

Example:
Pair EU Average Daily Range 300-400 Points
1st trade EU buy at 1.5000 / SL (100 points) / 0.1 Lot Size
2nd trade EU buy at 1.4000 / SL (200 points) / 0.2 Lot Size / (close trade 1 at SL)
3rd trade EU buy at 1.2000 / NO SL (or 400 Points) / 0.4 Lot Size / (close trade 2 at SL), depends an you trading fashion to trade position 3 with SL or not
4th trade...
5th trade...

Hope this helps

Ix
  • #3
  • Jan 25, 2009 2:36am Jan 25, 2009 2:36am
using a fixed stoploss is a pretty bad choice.

the stoploss definies your position size, and not the other way.

also adding to losing positions like martingale is a absolute no-go, imho. at least in the current environment. it is about picking decent entries and when the trade does not play out divorce early. by using 10x 20p stops you have the benefit of 9 additional tries compared to a 200p stp. the trade should run after entry, otherwise i am not interested in it and won't let it go under water for a long period.

sticking to sound money management, especially at the beginning, is the most important. switching ratio and using higher risk can wipe all your profits and destroy the stats. i would recommend a max risk of 1%/trade which equals 100 pips on a 10k account if you trade 0,1 standard lots.

e.g.

acc 10k
leverage 100:1
1% risk = 100 usd
stopsize 40 pips
pos size 100*0,1/40 = 0,25 lots

it is a good idea to close at least 1/3 of the position after 1,5x stop size to remove risk. rest should be trailed down.

the stop has to be on reasonable spots and not just on fixed 30,50,70 pips. if you go short immediately after a reversal, there is a need to place the stop some ticks above the swinghigh, everything else is just offering your margin as meal for the broker.
  • #4
  • Jan 25, 2009 2:48am Jan 25, 2009 2:48am
Quoting Dr.Geppynius
using a fixed stoploss is a pretty bad choice.

the stoploss definies your position size, and not the other way.

also adding to losing positions like martingale is a absolute no-go, imho. at least in the current environment. it is about picking decent entries and when the trade does not play out divorce early. by using 10x 20p stops you have the benefit of 9 additional tries compared to a 200p stp. the trade should run after entry, otherwise i am not interested in it and won't let it go under water for a long period.

sticking to sound money...
That was the best answer he could get. Accurate, Informative and to the point. You could close this thread now. ^^
I know there are always more ways to skin the cat but everything else is just rubbish. There are a few thing that
have to be used by every trader in order to become successful and that is one of them.
  • #5
  • Jan 25, 2009 3:04am Jan 25, 2009 3:04am
Hi All,

Thanks for ixbone's comments, but I felt that 50pips is a bit too large for stoploss on 5min chart, I am currently using 40 pips as my stoploss but if I sense that the market is going against me, I change take the initiatives to close it earlier before further loss occur. so the 40 pips is just a standby basis for sudden market move that is against me.

For instances,
1) When i see 2 consecrtive bar against my direction I will be alarm
2) I also have alligators indicators and if the bar hit the middle lines I will also make an early stop to my trade.
3) I also used CCi 14, if the cci 14 crossed the zero line against my direction I will also stop my trade.

I do agree with Geppy that fixed stoploss is not a good solution, and I like the management on 1% of 10K on 0.1 lot. I will do some research on that if this is a good way for me.

Thanks all!
  • #6
  • Jan 25, 2009 3:29am Jan 25, 2009 3:29am
Quoting yyc196
I do agree with Geppy that fixed stoploss is not a good solution, and I like the management on 1% of 10K on 0.1 lot. I will do some research on that if this is a good way for me.

Thanks all!
It's not a good way for you. It is the ONLY WAY TO TRADE. Period.
You absolutely can't be succesful for a long period of time if you don't start to get your risk and your stoploss right.

I've had a little rant about risk here:
http://www.forexfactory.com/showthread.php?t=114186
  • #7
  • Jan 25, 2009 3:58am Jan 25, 2009 3:58am
As i mentioned, it is always a personal statement!

PERSONAL i think a manual martingale is the only way to grow your account, even your account balance is under 10.000 bucks - remember you trade always against the market and the hedge fonds, therefore you always in bad position and must have the balls, to have time to wait till the market is re-going to your trade direction

PERSONAL I trade 24 pairs (not at the same time! only when the price action, and candles are right, 100.000 Account, 0.1-0.32 Lot Size, Manual Martingale, so I cant get wiped out, but I earn 4.000 bucks in a month (2% interests, 68% on win trades, 30% loosers, a looser is also a break even trade!)

There are no "perfect" NON-Lag Indis and correct Price Action, that gives you mostly the right direction. Example: Hedge Fonds sells in Jan GBP, in Feb EUR, in March JPY, if you have not the right account balance, you are mostly always not in the trend, so time and a big account lets you always go back and stay in the market. With Martingale you can close earlier you trades - to get minimum break even!

This is my PERSONAL opionion!

regards

ix
  • #8
  • Jan 25, 2009 6:33am Jan 25, 2009 6:33am
Hi IX,

I was just wondering how you calculated the 500pt stop you use on a trending 4Hr timeframe. I dont disagree, you need wriggle room but am just interested.

Regards
Steve
  • #9
  • Jan 25, 2009 7:22am Jan 25, 2009 7:22am
Seems like he just took a random fixed number.
As I don't consider a trade with a R:R smaller than 1:2 worth the risk
my TP had to be a staggering 1000 Pips with 500 Pips SL.
I trade solely the EUR/USD and place 50-70 Pips stops on H4.
This is enough to place the stop behind a good support/resistance level.
I don't use Take Profits and wait untill it get stopped out. Usually with 200-300 Pips. It's hard losing money when your Risk:Reward is this huge.
  • #10
  • Jan 25, 2009 8:05am Jan 25, 2009 8:05am
Quoting Tjpld
It's not a good way for you. It is the ONLY WAY TO TRADE. Period.
You absolutely can't be succesful for a long period of time if you don't start to get your risk and your stoploss right.

I've had a little rant about risk here:
http://www.forexfactory.com/showthread.php?t=114186

Nice write up....

If you are looking for the R:R to 1:2, it means you better be right, would you at any point use a trailing stop since you never want to give up any profits you may have.

Say that you are in the green, would you ever consider moving your S/L such that the position at least will not close at a loss due to a reversal?
  • #11
  • Jan 25, 2009 8:11am Jan 25, 2009 8:11am
Quoting et_phonehome_2
Nice write up....

If you are looking for the R:R to 1:2, it means you better be right, would you at any point use a trailing stop since you never want to give up any profits you may have.

Say that you are in the green, would you ever consider moving your S/L such that the position at least will not close at a loss due to a reversal?
Yes allways do that! It's part of minimizing the risk.
As soon as I'm about 50 Pips in profit in consider moving it to Break Even.
I try to get into a riskfree trade as quickly as possible. Sure you will have some 0 Win and 0 Loss trades but you will also get some 100+ Pip moves if your entry is good. 10 times stopped out without a loss and a 300 pip win is way better than losing 50 pips 10 times. So far 3 out of 10 trades get stopped out without a loss the others are big winners.
Watch the chart forming new highs and lows and place the SL behind them.
  • #12
  • Jan 25, 2009 8:12am Jan 25, 2009 8:12am
I'd always use a vola based stop size. I combine that with a dynamic position size management.

Personally I use the following MM approach with good success:

I don't use a fixed risk approach but an increasing and decreasing position sizing. My risk/rewrd is 0.75:1. I just use the following sample sequence:

L-L-W-L-W-L-L-L-L-W-W-L-W-L-L-W ...

If I lose two times in a row I linear increase the position size. If I win once, I decrease it again. The result would be:

-0.75; -0.75; +2.00; -0.75; +1.00; -0.75; -0.75; -1.50; -1.50; +3.00; +2.00; -0.75; +1.00; -0.75; -0.75; +2.00 ...

My overall result would be: +2.00%
Using a fixed position size (always -0.75% and +1.00%), the result would be: -1.50%!

You see such a position size management can make the difference! Of course you still need a system with a positive expectancy.
  • #13
  • Jan 25, 2009 8:31am Jan 25, 2009 8:31am
All SL TP TS , account size, risk:reward ratio, depends always on your personal trading style!

First we/you trade not for a hobby, we/you trade to get more wins, more wins usually are more money in your pocket.

Second, you can limit your risk, its limiting usually your reward and we know, forex is a risky game - there is no holy grail with less risk and much reward!

PERSONAL! As we know we are currently in a trending market
Example GBP/JPY and GBP/USD this week.
GBP/JPY lost ~ 1000 Points in 3-10 days and comes back on thursday this week.
Monday 1st trade: Indis shows up, Buy 0.1/ SL 100 Points/ but trend goes down.
Tuesday 2nd trade: By 0.2 / SL 200 Points, closing 1st trade (looser)
Wednesday 3rd trade By 0.4 / SL 400 Points (Trend is 3rd day down!), closing trade 2 (2nd looser) 3rd trade is still open, because no SL hit! But in minus with 300 points
Thursday 4th trade By 0.8 at Noon, No SL, reverse trend afternoon for 300 points

Result: (1point = 1$)
1st trade - 100 points x 0.1 = -100$
2nd trade - 200 points x 0.2 = -400$
3rd trade +/- 0 points x 0.4 = 0$
4th trade + 300 points x 0.8 = +2400$

Sum 2400-500-[No Spread calculated]=+1900$

Yes it was a little bit lucky, it does take approx. 5 days time, so if you are in hurry, don't trade this SL and manual martingale- this is fulltime.
Also, if your account is pretty and you have time and calmness, you cant get wiped out.
You will be always wiped out if you overtrade your system! Regardless which system you prefer! Or you limit risk and reward.

My trades this week with my SL and manual martingale:
Forex: EUR/JPY, NZD/USD (still in minus) GBP/JPY, GBP/USD, EUR/GBP,AUD/CHF
Options: EUR/GBP, GBP/USD (for insurance)

Hope it helps

IX
  • #14
  • Jan 25, 2009 8:33am Jan 25, 2009 8:33am
Quoting ixbone
Result: (1point = 1$)
1st trade - 100 points x 0.1 = -100$
2nd trade - 200 points x 0.2 = -400$
3rd trade +/- 0 points x 0.4 = 0$
4th trade + 300 points x 0.8 = +2400$

Sum 2400-500-[No Spread calculated]=+1900$

...Also, if your account is pretty and you have time and calmness, you cant get wiped out....
Oh yes you can and you probably will. I'm through this as well. How often can you double up? And do you have the balls to risk more than 50% in your last possible trade?

But I agree that this might work for a long time. It isn't for the faint hearted I guess.

edit: As I just thought of this, I think the probability of getting wiped out is indeed low if you do it that way... Thanks for sharing anyway.
  • #15
  • Edited 9:04am Jan 25, 2009 8:46am | Edited 9:04am
Xaron,

yes i have the balls :-) and more important the account :-), I trade 0.1 - 0.32 on a 100k account (not 1.0!), so i have enough room to trade other pairs too, also remember, not every trade is till 0.32 lot size, mostly trades are results in 0.4 or 0.8 lot size.

My SL are depending on the daily, 5 days, 30 days till 240 days, so my SL are not fixed regardless which pair i trade.

if a pair has a daily average range from 450-550 (GBP/*) i widening my SL, if a pair has less daily average range 150-250 (like E/G or E/C) i set my SL closer based on trending or ranging markets = Risk management

then if you set fixed and wide SL by less daily averaging pairs, my martingale will only hit the first 1-3 trades, not bad wins, but not the monthly money what my bills are require....

Remember my martingale is like increasing position sizing - not blindly betting! I know martingale has a bad reputation, but only used with EA's and undersized and overtraded accounts

IX
  • #16
  • Jan 25, 2009 8:52am Jan 25, 2009 8:52am
I know ixbone. Martingaling isn't necessarily bad if you know what you're doing. Thanks for your explanation!
  • #17
  • Jan 25, 2009 8:55am Jan 25, 2009 8:55am
Xaron

yes this is my trading style since 12 years, well I lost also money at the beginning of my forex career, in finding the right style/system for me.

Well I,
- dont overtrade,
- trade forex, options and futures fulltime,
- I'm calm if a trade goes in the wrong direction
- pretty account
- trade sometimes options for insurance

IX
  • #18
  • Jan 25, 2009 9:08am Jan 25, 2009 9:08am
Quoting Xaron
I know ixbone. Martingaling isn't necessarily bad if you know what you're doing. Thanks for your explanation!
You Are Welcome
  • #19
  • Jan 25, 2009 11:46am Jan 25, 2009 11:46am
Hi,

I am glad for the great comments here, but is there any indicators that can be used to signal stoploss? I wish to find an effective and more mechanical way to tell me when should I close my losing trade.

This could be a stupid question, but it is useful for me.
  • #20
  • Edited 12:50pm Jan 25, 2009 12:02pm | Edited 12:50pm
Here's a few ideas for you:

http://www.trading-naked.com/StopsandExitsbyBUFFY.htm

Personally I like to use market structure on longer term trades, so if price is in an uptrend I will put a stop below the higher low and continue to trail the stop using the higher lows until either my target gets reached or I get taken out. If price breaks that making a lower low then it is no longer in an uptrend and the trade idea is no longer valid. In short, you want to be in the trade until the reason you got in the trade in the first place no longer exists. Other traders will also be using the same method, perhaps inadvertantly, and this will mean there may be potential support and resistance around these areas

In short term trades, as soon as price starts breaking the highs or lows of bars in the opposite direction of the trade then that is a signal to GTFO for me.
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