Stop losses?

[celticheart]

Hi, everyone..

I started trading Forex about a year ago, and last year learned quite a bit about technical analysis. Never did figure out a system that worked for me consistently, though, and ended up with losing trades. So I quit for quite some time.

I just got back into it the beginning of last week. I'm doing things very differently now (with a demo account, of course) and last week made +492 pips. I was setting very high stops and felt I should be more conservative with them, so on Monday I made sure to set my stops between 30-35 pips. I had 5 trades stopped out. Set another trade with a higher stop at 50 pips. Stopped out. So I had a very bad losing day on Monday, about -250 pips, each stopped out with set stop losses. In each and every one of these trades, if I had not set a stop, they would have turned around and gone into profit later in the day. (and yes, I would have had the margin to cover the drawdowns)

Started back up again last night, this time did not set any stops at all. Since last night I am +192 pips so far (closed trades). One of these trades went to about -80 before it turned around and went into profit. I have 3 more trades still open, and each are in the -20 area, but are heading again in the right direction.

So I am just curious if anyone else has had the same experience? I only trade intraday, maybe that has something to do with it. I am aware that at some point this may not work out, but it seems that it works out better for the most part with no stops (as long as you have enough margin, of course). I realize this would probably not be true on longer timeframes, but it seems to work pretty well within a several hour period.

I've also found that (for me, at least) it is much more difficult to recoup a loss on a closed trade, than to just let a losing one keep going until it turns around and becomes profit again.

[mastergunner99]

You pretty much answered your own question I think. Just need a little validation. If you find you're getting stopped out too much and it's adverse to your trading system, either adjust the trading system or adjust the stop loss.

A stop loss should be the point that you recognize if the price hits this point, it's not turning back around. Which for traders is extremely difficult to recognize.

Currently, I'm in a similar situation as you, where I am debating the possibility of expanding my stop loss just a bit further.

[Sweet Pip]

Stoplosses are my bain as well. Over the past month or so I stopped setting them too. Then about 99% of my trades would end in profit, but, as the story goes, the "one" that didn't turn around especially when I wasn't around, wiped out the profits and set me back ...and yes it is hard to get back from it

So now I'm also re-evaluating what to do about it. Sorry can't offer any advise just yet, but workin' on it

[celticheart]

yes, validation is good

Sounds like similar experiences. And I also worry about "the one that didn't turn around."

Maybe setting up a hedged trade for when you're not around?

I haven't quite got the hang of those yet.

[mastergunner99]

Originally Posted by celticheart

Maybe setting up a hedged trade for when you're not around?

I haven't quite got the hang of those yet.

Such a tactic should only be used once the existing trading plan is intact and running the way you desire. After that you can dabble in such advanced techniques.

[rantinraven]

I'm glad to see people talking about stop losses in this light. Almost everything I had read mentioned 20-30 pip s/l I would set up the trade it would go my way not hit my t/p lvl but sure enough ride back down to hit my s/l. Last couple of days I have adopted another tactic. I only set s/l for when I know I am done trading for a period. If I am going to be sitting here then I just keep an eye on things and let it run. I would be interested to hear more about hedging though. I did a little of it just to play around this morning and see what would happen. Wasn't so great but then again I am only learning, so its good to see what does and doesn't work for me. Id also be interested in hearing whats the biggest s/l you would put on a trade. Maybe the markets whipsaw more than I have seen...*shrugs* Anyways thanks guys for shedding a new light on the subject. Raven

[Andrewunknown]

Hedging can be more complicated than you think and can prove counterproductive to the protection you are seeking to derive from it if you don't enter a hedge with precise timing of market momentum. Mastergunner give good advice here: hedging is something in your tool kit, but it's advisable to leave it there until you've attained some real proficiency in whatever method or system you decide.

Hedging should always be strategic - meaning you should incorporate a provision for it in the money management rules of your method/system - never a knee-jerk, what-can-I-do-to-save-my-capital-from-the-unrealized-drawdown-I've-stumbled -into decision. This lack of structure can and most probably would prove your enemy rather than your friend.

The debate over trading with or without stop losses has been (and will continue to be) discussed over and over - there are plenty of old thread from which to glean opinions, ideas and strategies to be found by doing a search. Stops exist, whether in your mind or as set up on your trading platform. Because "aversion to further losses after a point x" is a function of your psychological makeup (and instinct for self-preservation!), it is something you cannot get away from. Rather than trying, bring stops out into the open and systematize them somehow: know why you set that "20/30 pip stop loss" rather than just doing it, or worse, not setting one at all and stopping yourself out with a flattening trade that was all decided on in your stomach.

Using a static number for a stop loss is a great idea as one starts out trading. With some experience, setting stops should become relative to market conditions; e.g. placing a stop 10 pips below a resistance level is likely to result in being pulled out of that trade, whereas setting the stop 10 pips above the resistance point lends your trade a higher likelihood of continuing.

I'm not dissuading anyone from using hedging in any cirumstance or at all costs. If you are trading demo, trying experimenting with it; but if you are live and care about your capital, hammer out the fundamentals of how you intend to trade and then do it profitably before tinkering with more sophisticated loss-mitigating tactics.

As always, we each operate self-directed accounts, so this is ultimately left to the trader's sole discretion.

[tymen1]

Originally Posted by celticheart

............................
.............................
................................ I had 5 trades stopped out. ................................with each stopped out with set stop losses. In each and every one of these trades, if I had not set a stop, they would have turned around and gone into profit later in the day. .......

Started back up again last night, this time did not set any stops at all. Since last night I am +192 pips so far (closed trades). One of these trades went to about -80 before it turned around and went into profit. I have 3 more trades .........

. I am aware that at some point this may not work out, but it seems that it works out better for the most part with no stops (as long as you have enough margin, of course). .............

I will tell you what I tell many new people here.

There are 2 rules with stop losses :

1) Never trade without a stop loss!!

2) Remember rule number 1.

Stop losses have not been invented just to irk traders!!
There is a good reason for their existance.
You only need one trade to run away from you and you will lose your entire bank account!!
I did it as an experiment on my demo in my early days!

It may seem attractive to trade without a stop loss - but you are playing Russian roulette with your money!!
You are just gambling!

How do you do money management without a stop loss?
Answer - you cannot.
How do you set a risk/reward ratio and win/loss ratio without a stop loss?
Answer - you cannot.

I also recommend the setting of a PCI stop loss - power, computer, or internet failure.
These things do happen.
Without a stop loss, by the time you re-boot your computer and reload your program, you may get a margin call!!

The fact that you keep hitting your stop loss is not a fault of the stop loss but rather something wrong in your trading strategy.
Solve the trading strategy problem and your stop losses will fall into place.

In my thread :

THE JOY OF CANDLESTICK TRADING - a Learning Experience

I outline the use of Starc bands.
These show the likely range of your trading and allow you to set a stop loss
in a proper place.

Go there and learn if you so wish.
I especially recommend reading post #325 on page 33.

All the best!

[Jimmy Jones]

I'm new to the forex scene (9 weeks and counting) but I'll add my two cents. I come from a programming background, and last month I decided to look into the dealbook programming language. After several weeks of all nighters and furious coding, testing, tweaking, and more testing, I came up with an EA for the GBP/USD pair that averaged about 800 pips per month. The catch, stop losses were based on previous day price action levels. Whenever I tried to add a reasonable stop loss (a set pip amount, like 20, or 50, or 200) the pips won count was drastically reduced.

No big deal I thought, this is great!

But I had the nagging feeling it was too good to be true, so I dug a little deeper. Then it hit me. Sure, if I had a huge bankroll I could easily withstand a -400 pip floating loss until the market turned itself back around. But alas, my bankroll will not be big enough to handle those kind of floating losses .

I think this is where risk to reward comes in. If your setting a 50 stop loss, you should be sure there is a better chance than not that the gain will be at least double, or triple that. If it's not you don't enter. How do you figure that out? I'm not 100% sure yet, but I think it has to do with grunt work (meaning drawing trendlines, using fib ratios, or whatever else is available to try and figure out where price might be going.

That my understanding at least, someone will correct me if I'm wrong...

[tymen1]

Originally Posted by Jimmy Jones

That my understanding at least, someone will correct me if I'm wrong...

You are completely correct Jimmy Jones!!
Yes, with indicator trading, you have to do "grunt work", as you say, to get that risk/reward calculation worked out.

With candlestick patterns all that work is done for you by the nature and size of the candlestick pattern.
It is so much simpler with candlesticks.

That why I trade candlestick patterns!!