I’m trying to reduce my risk a bit and I figure I can do some of this by reducing the gap between the entry price and my initial stop loss.
I usually place my stop loss the other side of the trendline or support/resistance line.
Some have suggested to put it 0.5% beyond the line but I feel this is quite a long way. Yet, too close and the line is tested by the market with a spike far too often for my liking. Where’s best?
Anyway, by the time I enter the trade, the price + margin have often moved from the trendline/support so the gap is much larger.
Now, I could
use an order to execute exactly at the line which would make it closer but there’s no guarantee at that point that the market might not break out;
wait for the definitive trend to be formed, eg a bounce back or reversal, etc. and then enter the trade. In this case I can’t put the stop loss at the trendline as it would be too far.
Well, this isn’t quite exactly what you are looking for, but here is a way to elimenate the risk in a trade sometime after it enters.
When the trade enters, as soon as you can, move the SL To your entry.
Now this will end up giving you a lot of break even trades of ± 0 pips, but it will take the risk out of the trade. (you will get some slippage though maybe - or +3 pips)
Or, you can just keep resetting the SL positive if it keeps going your way. If you are hoping for a big move and want to give the trade breathing room you leave the SL at breakeven and watch it. However I’ve found that if you are going to do this a lot, it’s better to try and keep resetting to postive, so you at least get some profit for your time.
I do this a lot when I don’t have a strong indication if price will keep moving like I hope.
As far as where to place stop loss from the entry, that is going to be determined by your strategy. With support and resistance it’s best to place it in a logical way, based on maybe a recent high or low. That is, if it goes past the high or low you’ll assume it’s not going your way.
I’d figure your SL first based on technical analysis. Then consider your risk and divide your risk among that stop loss.
It’s best, as a trader, to always consider the potential risk before the potential profit.
If you can’t accept the risk you should accept the trade.
Hi
Yeah, that eliminates the risk after the trade has happened maybe a few hours or if you’re lucky then very quickly and I do that with my stop losses by trailing them.
Problem is it doesn’t reduce the risk right at the beginning within the first few seconds, minutes where the market may move against you.
Waiting for confirmation of which way it’s going to move is fine but you can’t set your SL near that because the market WILL test the S&R lines.
Hours? How do you figure? If a trade is well placed it should positive relatively quickly. I usually do this a few moments after the trade has triggered. My pair has a spread of 4 pips, and with my broker resetting the sl has to be 3 pips away from price. So, basically price has to move only 7 pips from my entry for me to be able set to breakeven. If you are waiting hours for a something around a 7 pip move, then you are doing something wrong.
Trailing SL aren’t as good as manually moving to postive. For instance, if you have a 15 pip trailing stop. It has to move +16 pips before you lock in one pip. So, if it backs up 15 pips from +16 you’ve only made one.
IME, the trailing stop loss is almost always tripped very early. By manually moving it postive you can move it in for more profit.
There is nothing you can do to tottally eliminate the initial risk in a trade. The best you can do is plan good entries that have momentum moving in your favor so that they go postive quickly.
How do you spot the momentum? Even on the hourly chart when you can see signs of reversal like hammers, shooting stars or patterns it’s not really until the 2nd candle confirming the reversal that you can be sure…at least.
So, I can look at the indicators and patterns and figure that it’s going to reverse, so I place my order. At that point where should the stop loss be.
1.Trades smaller stop loss, less risk, more initial/long term profit, more trades stop out. Place SL 10 pips behind the order and trail.
2.Trades larger stop loss, more risk, less initial profit (missed out on some pips as you were waiting for the pattern confirmation), less trades stop out.
Place SL at a support/resistance point and trail.
Trailing SL’s always tie you to an acceptance of your "breathing space"
as the component which will always come off your profits. OK as a last
resort if you can’t (or don’t wish to) babysit your trade, but you pay for
this luxury, in strict pip-proportion to the timeframe of your trades.
If you want to remain reasonably certain that a trailed SL will stay in
place through the trend, it needs to be pretty well the same magnitude as
the stop you decided on when entering, based on whatever trading range
indicators you were using to assess the volatility.
Manually adjusting stops, based on how you see the trend developing,
has no equal.
This effectively eliminates the risk from one trade and transfers it to your account instead.
There are certain strats that do warrant moving to b/e as soon as humanly possible (following a breakout, not something I do btw) but they are few and far between. In most cases, this will cause your account to slowly bleed to death.
Ok. On a related question, how far above or below S&R lines would you place your SL at or move it to later on in the trade?
0.5% seems like a long way and the market tends to test these lines by breaking them so the traders can make profits.
I heard one bit of advice was never to use round numbers…
I think it depends predominantly on how many pips your RM strategy will
allow you, not necessarily on where the support/resistance is. It depends
a lot on the time frame and the trend. I tend to place initial stop at, or
fractionally above/below the last high/low, as long as it’s compliant with
my risk management. If it isn’t, I don’t trade.
Maybe I trade differently to you.
What timeframe are we talking, here ?
I think the round numbers thing is an urban myth. I presume you mean
[B]brokers[/B] spiking you out, not “traders”, yes ? No trader, however mighty,
could accurately dive-bomb one line on the chart like that.
You just answered your own question. The REAL momentum happens when the move becomes more obvious to most traders and more traders or banks move on it. As traders pile on the move speeds up.
If the trade enters, goes my way, then I am able to set the SL positive to at least +/-0 pips, then my trade doesn’t lose or gain any pips/balance and my account doesn’t lose any pips/balance. In this scenario if my account was $100, and I entered a trade that stopped out at break even, my account would still be $100 after I was out of the trade? Absolutely nothing bleeded out.
How does that transfer risk to my account? I think you misunderstood something. Do you mean the spread? That is part of setting it to break even.
Try taking the daily ATR (default 14 periods is fine) divided by 6 for intraday S/R bounces. Nothing golden about this rule, so experiment. Move to break even when trade is at least this in profit.
Round numbers - don’t be paranoid about them, but yes they do have a psychological draw and so stops are commonly found at these numbers. But if you’re already targetting an S/R line, and you’re setting your stop beyond that, I wouldn’t worry too much.
Some people use ATR & percentages, which are based off of the fact that the last few candles moved x pips, so you can reasonably assume that it MIGHT move that far either way in the future.
When first starting to use this, it’s better to just move the SL to BE as soon as you can and then keep moving the SL postive. That way until you get your own idea of where to put stops from experience that will give you breathing room, you’ll end up with a lot of, +/-0 pip trades, small winners AND when you are right and catch the momentum some REALLY nice winners.
IMO, the best thing about moving the SL to BE and then manually trailing is that you are not caught in a noob cycle where it backs up to your negative stop loss and you hold on for a loss, just because you set your stop loss there. That can lead to moving your stop loss even further because you don’t want to get stopped out, because you’ve convinced yourself it will eventually hit your TP.
I’ve found that you often make more money trading by concentrating on NOT losing small amounts repeatedly, rather than concentrating on large profits, while holding on to a negative SL.
Moving to b/e really quickly (unless it’s a spur of the moment, jumping on a trend trade/scalp/dangerous type trade) will [I]eventually [/I]cause you to lose more trades than win. Ergo, you’ve saved yourself any pip damage on this trade, but in the long run, your account will seriously suffer.
It’s a short term relief that you swap with a long-term pain. Better to deal with handling losses in the first place.
Are you considering breaking even a losing trade? Myself I consider any trade that doesn’t lose me any pips a win.
I don’t see how it can hurt your account negatively in the long run.
Sure, by leaving the intial SL in place you’d leave yourself more breathing room and one MIGHT see an overall larger account increase. But that’s assuming the trader is experienced enough to know good spots to put SL and is consistently right about the direction continuing to the eventual planned TP.
I can only speak from my own experience. What this has done for me is allow my account to have a slow creep upward with very little loss, but a lot of break even trades.
I know for sure much more experienced traders have better spots for stop losses and can spot direction better. I’m suggesting this is a VERY good way for inexperienced traders to manage stop losses, as most new traders are very uncertain about direction, that includes myself.
There is a [U]correct way[/U] to move your stop loss to break even without risking your account.
The idea is to increase your [B]win/loss ratio[/B] so that you have an edge in the long run.
The [B]correct way[/B] to do it is to use [B]multiple contracts[/B].
If you do not do this you will lose in the long run even with a stop loss at break even.
The [B]correct procedure[/B] of using break even with multiple contracts is fully explained in this hyperlink…
The multiple lot strategy is actually better explained in this book: Forex patterns and probabilities: By Ed Ponsi. (I know I keep hyping that book, but I think it is really good) He uses it very often in the book, which is where I got my BE strategy. I, however, am not yet ready to move on to multiple lots. Instead of two he uses three lots at time , but the concept is the same.
Basically it’s like this: Set up three lots with the same entry.
Lot #1 will have a TP = to the initial SL, A 1:1 risk/reward ratio.
Lot #2’s SL will be moved to BE as soon as Lot #1 hit’s it’s TP and makes it’s gain. At this point these two lots only have one outcome: a gain from the first and a BE from the second.
Lot #3’s SL will be moved to BE as soon as lot #2’s even higher TP is hit. At this point worst case scenario is #1 & #2 have hit their TP points & #3, retraces back and BE.
Of course all three lots could go against you and you could lose your SL on ALL THREE lots. So, it’s important that you spread your total account risk over the three lots, NOT multiply your risk by three lots.
What this strategy really does, is lock in smaller profits AND gives you the opportunity to potentially catch a big move. It also, controls risk by setting the SL to BE at key points.
Why 6?
On a daily chart the ATR might be around 100-200 pips.
On an hourly chart it might 30, so if you’re trading hourly, should you use the 30 value? You’ve mentioned moving to be when the profit show this much. So, 30/6 = 5. So when the profit has moved 5 pips. Correct ? That would then give you a stop loss only 5 pips below. With 100, then it’s 17.
Now where are you suggesting you place the SL with this method?
Lot #1 will have a TP = to the initial SL, A 1:1 risk/reward ratio.
Lot #2’s SL will be moved to BE as soon as Lot #1 hit’s it’s TP and makes it’s gain. At this point these two lots only have one outcome: a gain from the first and a BE from the second.
With lots, do you set a limit order for Lot1?
There is a chance with this method that both bets get stopped out…plus you need 2 betting accounts.