Stop Loss Placement - Adapt to Market Changes?

With all the hype over the last 5 years of markets changing due to HFT etc I am interested to know how traders have adapted to this. I have started this discussion to see if trends in stop loss placements have changed to account for changes in the market.

I am not asking for your secret sauce or anything that would reveal traders edges but if you have the time to drop a post about your choice in stop placement and how well it works it would be much appreciated and hopefully a useful debate can ensue.

How about time stop loss on a daily level

Time stop is interesting but relying on time stops can also expose you to quite a big loss so I think you have to have a hard stop.

Agree, but there is no perfect solution..if I use hard stop, then I don't use time stop..reducing the leverage is the key in time stops in my opinion

This is a good question. Placing good stops is half of my trading system. I sometimes even skip good scenarios because I cannot find an acceptable level for stops. This might sound strange, but I never take a trade where my stop loss is larger than 40 % of the average daily range.

So if you are a daytrader, placing your stop loss outside of the daily range gives you some advantage. For example, If I was suppose to go long on eur/jpy today, I would place the stop right below todays low. In other words - you are placing the stops where the daily trend reverses.

I ran some statistical tests on and wrote about topic 4-5 years ago:

Defining the daily trend
if intraday "low" has been formed before intraday "high" then the direction of the main move of the day is up. In case the "top" was formed before the "bottom" then it means that the direction of the main move of the day is down. Same on any other time frame.

On majors, it range from 77%-96.5% chance that a trend will change none, 1 time and 2 times. By zero, it means that price go one straight way after open and never looks back.

Hope this helps.

Best,

No "single rule" about stop placement can ever be perfect.

We've all had situations in which trailing stops would be very beneficial and situations where they're a disaster. We've all had situations in which fixed stops would be very beneficial and situations where they're a disaster. We've all had situations in which trailing a stop manually under or above the most recent swing-high or swing low would be very beneficial and situations where it was a mistake.

What helps is to acknowledge this reality, and come up with a stop method which suits your personality, the market you're trading, your psychological approach to trading and your objectives, knowing that it will sometimes turn out to have been a bad choice, and accepting that with equanimity.

People (like me) to whom risk-avoidance is more important than maximizing potential profit will prefer tight stops and move them to breakeven fairly quickly. This will sometimes be at the cost of missing a much bigger profit (but one can always re-enter).

Stops and exits are far more important, overall, than entries.

This is a good topic for discussion. Many thanks for bringing it up as I've wondered about this issue myself.

Just some views tho, if you will permit: I don't think debating other people's stop placement policies (with special reference to recent market developments e.g. HFT etc) is helpful or even "useful" (as per your OP post). Obviously different policies will work for different traders trading under different personal circumstances and having different approaches to risk taking. Surely merquise is not trying to impose his stop placement theories on others but merely responding to your survey.

Definitely a casual survey of wide-ranging attitude changes in risk taking would be educational to all. But I predict debates on this topic will devolve into arguments over whose stop placement policy is more or less stupid.

So as not to diverge too much off-topic: In hindsight, it would appear that I have placed lesser and lesser importance on hard stops, and more on mental stops. And if I did deploy hard stops, it would be at least 2 S/Rs (as I see it) away. This also meant that my Reward:Risk ratio is frequently less than 1.

I certainly do not recommend my approach to everyone else. This is something that works for me and (I believe) me alone.

I think aediaz1 makes terrific points. Stop placement can absolutely make or break your trading. And I've had the exact same scenario occur, whereas I feel like I have a great idea that the market is going to go in a certain direction, but I can't take the trade because the stop placement would be too far away. The way, of course, to combat that is to adjust your position size accordingly and if you like just trade smaller than your original plan. At any rate, stop placement is a bit of an art, much like everything else with trading. The more I get on here, the more I liken trading truly to "feel". Its akin to expert animal wranglers who can seemingly comfortably anticipate the actions of fierce toothy critters because they've spent decades analyzing their tendencies. That, to me, is trading.

Firstly I define major resistances and supports using Daily time frame ..

After that I define S&R for the time frame I target to trade ..

I combine all of them and place my stop loss using them ..

This is my sample strategy that works very well to protect my positions ..

Hope I answered your question ..

Greedtrader ..

I know I'm new here, but based on my analysis of historical data ideal stop loss values have't changed over time. Of course, keep in mind that I'm a robot developer/trader and not an expert like some of the folks here.

At this point, I've imported years of historical data into a SQL database and created several different queries to reach this conclusion. I've noticed that the market will always fluctuate significantly and hit your stop loss. At the moment, my robot uses a hard stop of 25 pips. Anything lower than that and I end up with far too many losing closed positions. With that said, the stop loss is not my systems primary exit condition, it's only a safety-net.

Well, in a way where to place the stoploss is half of ones strategy. The other half is the take profit. So its a pretty big topic i guess. But still there is a simple answer: I decide if its going down if it breaks a important level, probably a low and vice versa to decide if its going up. The tight stoploss is AT that level. The more moderate stoploss is at the next level.

Just to make things current and technical:



So lets say i was selling some E/G in general. Then if it turned out bad and it got to the blue line, i would know for sure i was in big trouble.

Some great comments guys please do keep them coming.

This sounds really interesting...do you have a thread where you wrote more on this topic? I started experimenting with ATR based stops recently.

btw, after quietly reading for a long time, I finally signed up here

The Problem With Stop losses.

By running a quick search for Stop Loss on this forum and many others like it, it is obvious that most traders use Stops as a way to manage risk.
The problem that I see is that this forms a predictable behavior.

For anyone with an idea of a traders positions and the traders stop loss thresholds it should be possible to anticipate the traders actions which can lead to predation risk. In fact any risk management based on a price change can in theory be anticipated.

I agree, I think the key is to exit a bad trade before your stoploss is reached. IMO, you shouldn't let your stoploss do the work. Some other indicator should be used to identify bad trades well before your stoploss is reached. In addition, I think it's best to have a different stop-loss threshold for each time period you are working with.

It should also be noted that even if you have a stop loss set the market can change so fast that you still lose much more. In fact, last night I noticed I had a closed position (I think it was EUR/AUD) of with a 42 pips loss on a trade and yet I had my stop loss order set to exit at 25.

Welcome to the forum. I notice you chose 'Star Wars day' to sign up.....

Since you have spent a while reading you will know that you sometimes need a thick skin, don't be put off.

Hi Exodus and thank you for the welcome. Star Wars day was more or less a coincidence
I am not put off easily and, yes, I noticed the tone of the forum which is fine though Looking forward to kickstart my trading here!

Rex

you can use ATR% for stop loss