stop loss

I understand importance of stop loss because it makes us detached from trade and free from fear factor,but i am always confused to decide what shud be the stop loss,please advice on what basis do you decide to put stop loss.

i use a % risk s/l. so on one trade, what am i willing to lose in dollar terms as a fraction of my trade size. based on that i lot size and i set my stop.

if the trade setup requires a s/l farther away than what my %risk allows, i don't don't take the trade.

its not about how much u can make, its about how much you can lose

I guess i look at it a little differently. I look at the chart and using support/resistance I determine the size in pips of my SL. Since I know what % risk I am willing to accept I can now determine my lot size.

For example, if the charts said go with a 50 pip SL and I am using 2% risk (let's say that works out for exactly 1 lot example only). If the charts, however, said to go with a 100 pip SL and I was still using 2% risk then the calculation would end up with 0.5 lots instead.

Also, this will vary based on the TF that you are trading. Daily TF will have SL of 100 pips or more while M1 scalpers may have SL of 20 pips max.

So, base SL on S&R...calculate lot size based on the pips measured and %risk and then enter trade.

Some people will do this backwards and calculate their SL based on their lot size. never do that..let the chart tell you where to put your SL..it could behind a Big Round Number...behind a previous high etc

Once you do that then you are still only risking the % that you wanted to risk but there is a lower probability of being taken out.

As tight as possible and as wide a necessary.

I will have to remember that one. LOL

I love to read this e-book by Rob, it doesn't mean we have to trade without stop loss, or if we trade without stop loss so we are the winner , this is a nice e-book

http://www.earnforex.com/forex-e-boo...or_Sissies.pdf

@ TS

if u have flexible lot sizing this is a good method.

good point on T/F of trading. for a lot of shorter t/f to get smaller spreads u have to trade in sizes above 10 standard lots...so adjusting lot sizing isn't an option or u give up a lot of profit from commissions.

a lot of it depends on the way you trade. i prefer to stay out of the market, and i've given up on entries based on missing the entry by a few ticks. i find this works for me and i can keep my psychology and consistency where i want it.

so find what works for you. whether u pick ur trades based on ur risk and the s/l it allows, or you pick your lot sizing based on the s/l u want...both can work.

what i know doesn't work is picking a fixed s/l based on % risk and trade it regardless of what the setup or entry looks like.

my rules of entry give me where to put sl below my entry bar....so you need to develop a strategy for ur entry and that will tell u your sl risk ratio...
decide the type of trader you are ..day trader-swing trader-scalper

Create a strategy and test it, see what works and you'll find your exit point. Stops are to protect your account and also to keep your from potential gains, placement of them are far more important than entry as they will define your trade as winner or losser. Seems like you have a lot of homework to do.

since you are a SWINGTRADER... the answer is pretty simple. The first, and most obvious place for a stop loss is just below the last swing low (in an up market, vice-versa for downtrend). I would never take a trade that is not prepared to, at a minimum, take down to last swing low. Better yet, be prepared to go down 2 swing lows. Much safer and more profitable. Anything less than the last swing low... you are toast. Your weakness will be found and exploitied. PM me if you have more questions. Hope this helps!

Regards

Swing,

I use a fairly tight stop loss on mine, I determine it by a combination of % of acct and S/R. I also use Jacko's Anti Hedge strat. It works pretty good and keeps me sane and I get a fair profit out of it.

Simple

There are 6 numbers that govern what your stop loss can be. How you choose those numbers will determine your stop loss. If you decide to start with an educated guess for your stop, you will then manipulate those other numbers to help determine what you must do to succeed in your trading system. Once you decide on stop loss it affects all the other numbers in what might be considered a very fluid system.

swingtrader, set the SL as far as possible so you will not be taken out of the market by random moves and I suppose that you are a swing trader, then you need to use your gut instinct to see where you feel ok to exit from the trade. if you want my advice, always use a scale out solution, and not just a SL for exit from the market for the entire position. And always set your SL so in the situation that you will have all your sl's hit, your draw-down will be not so big; try to build yourself a very sound management, but remember, the management is not for geting an edge, the only purpose of the management plan should be " optimize the balance betwen maximizing profits and minimizing losses". have a good trading!

They main element in placing your stop loss is putting it at a place where your original trade is invalidated.

So if your going short then a good place to put your stop loss is at a price where you would then go long.

Bhav