Stop loss setting for daily charts?
I was wondering what everyone thought would make a good stop loss for someone making swing trades useing the Cawabanga system with daily charts.
I know that daily swings can be big. But I have also heard that one should limit their losses to 1-3% of initial capital.
Of course one's margin will affect this, since a higher margin would force one to stop out quicker.
Personally I find that a 2:1 margin allows one to place a 48 pip stop, assuming 2 pip spread, which allows for 1%.
But I realize that since the EUR/US swings, on average, as much as 75 pips or so, that this might not be enough.
I also don't want to be stopped out on a big news day when the spreads can increase until I am forced out at a loss.
So I pose the question of what do most of you out there choose?
Do you risk a slightly higher % of capital in order to stay in the longer swings?
At 2% capital one could set a stop loss 98 pips above/below one's entry
At 3% capital one could set a stop loss 148 pips above/below one's entry
Of course it can be argued that a good trade would not usually move more than 48 pips against you.
Indeed what is the reward/risk factor for such a thing?
If I risk a total of 50 pips to go for a 100-200 pip score, that is good.
But how much greater is the potential for 100, 150 pip loss?
Any opinions on this matter?
I am inclined to, for the rest of this first month, stay with the 1%, 50 pip rule for now. Since it seems the biggest mistake newbies make is swinging for the fences and chasing wild pitches.
Any advice is always appreciated. The best of luck to all traders.
Well you ask great questions which trouble us all. I know I hate to get stopped out of what I think is a great trade, however, you must have limits, rules, money management. I have a 5,000 real acct, and trading .5 lots at roughly $5 /pip, I woould lose 250 / trade, I could last less than 20 bad trades, of course, I would have no margin left to place an order with, until I funded the acct some more. (bad)
I would stay at 50, and see just how many trades you get stopped out on, perhaps enter the market closer to the bottom resistance or top, with a pending order instead, to give more value to your stops. Best wishes on the PIP!
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