Are Stops meant to be Hit?

Hello.

Do you all think that stops are meant to be hit? Let's say that you risk 2% per trade (I believe this is where traders go wrong, will save argument for later date). You all know that trading is a game where you will lose more then you win (You are competing with the best of the best). The word "more" for most traders (90%) represents money, but I believe the word "more" for the professionals represents trades.

Now, that I have said this, I will put the above in a simple expression.
Professional Trader = Lose more Trades
Other Trader = Lose more Money


When loosing more trades, you can't be risking 2%, because you will quickly develop a drawdown with loosing streaks which are quite common (too common ). I would say that professional traders set hard stops at 2% (emergency stop), but close the trade a lot earlier in order to avoid the psychological impact that this loss would bring.

For example, I never let price hit my stop-loss, I take advantage of the fact that I trade intraday (nothing below 1H) and it does not take to long to know that your wrong. I do close out some trades prematurely, but price would have stopped me out at a 2% loss and then returned in my favor. There are some trades where my setup becomes invalidated and I exit at a small loss and price then continues to my profit target, but one thing that remains constant is the little amount that I lose. It is all part of the game. Money Management has allowed me to have what I consider a emotionally tough week, 3/17 winning trades and still come out on top.

I know that I went a little of topic, but let me ask. Do you think at stops are meant to be hit?

Also, I must ask. Why would you risk 2% per trade? How much are you trying to make? The pros are just trying to beat the S&P and get about 10% a year. By an individual risking 2% per trade, they are clearly trying to make high returns. Lets look at an intraday trader risking 2% per trade and having about 10 setups for that trading day. Does this trader know that there is a possibility that he can make or lose 20% for that day (both tails). Do you know what nature does to things that are out of equilibrium? My trading mentor once told me, "The people that win the lottery usually lose everything because they broke the odds and nature has a way to bring extremes back to equilibrium". A 20% loss unfortunately is something that is tough to recover from despite the argument of things returning to equilibrium because you have other factors working against you. I know I got off topic, sorry .

I think stops should have to do with volatility
how much volatility are you expecting in a 24 hour period? one hour period? four hour period?

If they're trailing stops, and you're using them as the only exit-parameter of a trend-following trade, then clearly they're meant to be hit - eventually.

Otherwise I want them to be a hit if my reason for being in the trade is no longer valid, so I position the initial stop where the price hitting it would indicate exactly that.



It depends what sort of pro's you know, I guess: all the pro's I know are hoping and expecting to get 100% in a year, to earn their huge year-end bonuses.

as much as I agree with Xela I still think that volatility should determine your stop placing...it is hard to recognize "exactly" when the reason for your trade is no longer valid unless .... some macro economic data changed completely ...let's say the FEDs saying rate hike is out of the question would definitely be a serious hindrance to a bearish EURO outlook in the short- medium term; otherwise price will move and noise is in the data.....hard to pin point.

check this article: http://www.forex-fx-4x.com/stop-loss...72296142578125

stop loss hit = you are on the wrong side of order flow. Nothing else.

Yes - I don't disagree at all.

Of course they are meant to be hit. Then the price turns back immediately.

A stop loss is meant to be hit
A profit target is meant NOT to be hit

Therefore it's best to use a stop win rather than a stop loss

My trading improved considerably after dropping the use of stop losses. If you read through my previous posts you can see I was an advocate of using stop losses and while I was making money, it was not the most efficient way to do so. Once you realize how erratic the market movements are you will understand the stupidity of using stop losses that can be hit when the market whipsaws around.

Most people use stop losses but why? Well, using leverage means stop losses are a must. If you risk the typical 2-3% per trade then of course you need to protect yourself with tight stop losses. However, trading unleveraged gives the trade massive room to breathe and gives you a lot more options to manage the trade.

The poster above, arelbilger is right. Stop losses are typically placed at those logical areas only to be hit and the market reverses. Stops get hunted on a daily basis. I witness this everyday. Massive clusters of stops that are worth hitting. By the way this has got nothing/little to do with retail stops. So why would you continue to get stopped out and keep losing money because of this. We are in this to make money but by using a tight stop you are effectively giving up and telling the market to take your money, over and over again.

Consider this: with the use of tight stop losses, you are betting on getting the direction AND timing of the move right. With no stop losses and no/low leverage, you only need to get the direction of the move right.

Obviously this does not mean you keep a losing trade forever. If you believe the direction is right, there are tools you can use to get out of a losing trade and still stay within your risk limits. With highly leveraged trades and stop losses, you have no such freedom and will of course be forced to take the loss.

This way of trading requires a lot more discretion and I would not recommend to the amateur trader with no understanding of how the markets work, but to be successful in this business you have to think outside the box and stop following the herd. Years ago I would have instantly rejected the idea of not associating every single of my trade with a stop loss.

Good use of sarcasm

.... then the price turns back immediately.