Trading on a multiple day basis you expect to the the classic zig zag pattern, but how much “breathing room” do you allow your trades? If I set the stop loss too close then I’ll get stopped out before the trade has room to move and if I set it too far I’m risking a lot of money.
At the moment I am holding trades anywhere from 1 to 28 days and allow myself a stop loss of 150pips. Then for every 150 pips I make, I give myself another 150 pips of breathing room.
Obviously if you were trading on a minute time frame you’re not going to give yourself 150pips because 150pip move on the minute frame is very unlikely. However 150pip move on a daily chart is totally feasible.
I just can’t seem to find that balance on how many pips I should allocate myself as a buffer. If a trade is going short, it never just goes short 500 pips… it goes short 100pips, long 40pips, short 180pips, long 120pips etc… it’s kinda random.
The amount of breathing space varies depending on which pair you are trading and the amount of risk you are taking, so there is no simple answer.
One week a pair may be averaging 100 pips a day movement, the following week that could drop to 50 or increase to 200 depending on what has happened and what news events are coming up.
Likewise, if you dont want to increase your risk, you could reduce your lot size to allow you to take a bigger pip loss risk without adversely affecting your account
It depends on [I]a whole range of factors[/I], some of them related to that instrument’s volatility both at the time of opening the trade and recently.
Personally, I err on the side of tighter stops than most traders, because I need my trades to move into profit pretty quickly after I enter them (otherwise my entry-reason was probably invalid and I don’t want to be in them anyway), but that’s only a personal perspective.
You are not able to “find that balance” because the market is alive, and depending on which pair you are trading, they are all subjected to different intra-day volatility, defendant on their individual orders for the day and fundamental events.
If you are trading a zig-zag pattern, together with the impulse flow, a very vague(do not follow) rule of time would be 50% of impulse move, but that will also depend on so many other factors involved.
You mention that if trading on a minute time frame, it is possible that if the trade is carried into high impact news events, such a volatility is not unseen. In fact, it is possible for even more vola on such events.
If I read you correctly, you are some variation of trend following, right? If so, most take into account the average daily range, or ATR. and multiple it by 2, with reduce lot size for extra tanking capabilities.
Also, what you are mentioning
it goes short 100pips, long 40pips, short 180pips, long 120pips etc… it’s kinda random.
is not random at all, it is just the wave pattern at work.
Price charts move in 2 stage, trend or congestion. In trend, they make higher high, higher low. etc. In congestion depending on range, you would see all sorts of “patterns”