Keeping your stop loss static is a good practice in long terms. If you will meddle with yous stop loss too much, then you can get inconsistent results even from a good strategy.
There is only one direction a stop loss should ever be adjusted, and that is the same direction as your trade is going (higher for buy, lower for short), to lock in profits. I specify it this way to clarify the difference between this and a (somewhat) self-adjusting trailing stop.
You are right, a trader should only adjust his stop loss to lock in come profits. If he is widening his stops then he is not doing the right act. It will increase his loss in lost trades and also in winning trades he won’t have any consistent risk to reward ratio.
Widening the stop loss will only increase the risk for the traders. Thus, one should always make sure that they do not move their stop loss, instead be sure of the right direction and cut down on their losing position.
nothing is final with trading if you think you will save your positions than move stop loss. it is true wider stop loss is highly risky You can surely loose that much pips in any uncertain condition. Your analysis should good before set this tool other wise you can do trading without it and close positions at any step.
If you’re going to widen your stops because the trade has gone against you, you are basically saying you don’t trust your own judgement and if this is the case you shouldn’t be trading at all
That is true, nothing IS final. However, if you are trading a system that uses stop losses, and you move them, then as has been said on many other posts, you are asking for trouble. If your system is getting stopped out a lot, then it needs to be examined and adjusted to make sure it is still a valid system to trade under current market conditions.
If you keep moving your stop losses, as eddieb has said, then you either don’t trust your own judgement, or if you are using someone else’s system, then you don’t trust the system, and you shouldn’t be using that system, or possibly trading at all.
Even in a well designed system, trades will go against you at some point. It happens. That is why your system should be adjusted to allow for those and minimize the damage done to your account (by way of stop losses) when, not if, WHEN that happens, otherwise your entire account could get wiped out.
stop loss is a form of art. you need experience and skills to master it. when i first started, i was told to stop loss at 60pips. in currency pair such as yen, pound and euro, the up and down easily 100 pips at least. the best way to stop your loss is by technical and fundamental analysis. last month, i was holding to long GBP for 2 weeks by more than 200 pips. news were bad as well, but at the end, it went up. i trust my own analysis and think pound will get stronger cos’ they are likely to increase interest rate by end of the year and their statement is mostly hawkish. in the end, i exited with a profit. it also depends on your risk appetite.
There’s nothing intrinsically wrong with adjusting a stop-loss in the direction of the trade (and with some methods/systems, doing so can be an important component of the trade-management).
Moving a stop-loss in the [I]other[/I] direction is fraught with danger. In general, a stop-loss should go wherever its being hit signifies that the parameters under which the trade was opened are no longer valid. It’s rare indeed for subsequent price movements to change that original perception (I see that that’s perhaps occasionally plausible, on some time-frames and with some types of trading, but they’re not circumstances that apply to any of my own trading: if the level of my initial stop-loss is reached, then I no longer want to be in the trade).
I strongly suspect that “stop-loss management” is, overall, a far more significant aspect of most people’s trading than their exact entry-timing.
I agree with everyone here, that, to summarise:
- stop-loss is an important part of risk management;
- you should not keep widening it in ‘hope’ that the trade will turn around;
- better to take a hit but leave with a smaller loss and enter the trade at a better level, than keep changing the stop loss.
I would add that for some trading strategies it is better to have no stop loss until you are certain of market conditions…
It could be that, for example, you banked to tolerate a three-hundred-pip drawdown with the idea of locking in a profitable move of three times that: if you have a proportionally smaller position to accommodate wider drawdowns of this kind, then you are not going to want to be too precise about your stop loss, because maybe you expect a lot of volatility from a pair (like GBP/NZD, which has a daily average range of over 300 pips) and a three-hundred-pip drawdown should be seen more as a range, say 250 - 350, or 300 - 400… In other words, sometimes your are better not to put in a stop loss and only have one in when your trade is moving in the right direction: why? If you like to trade wide movements, you may not use profit targets but trailing stops as your way of locking in profit… But you cannot trail a stop-loss when you are in a drawdown period on a trade, so either you set it absurdly far (like, a 1,000 pips), in the full knowledge that you have to move it anyway, or you wait and introduce a stop at a later stage… As long as you trade small, very small (relative to account size), then you can watch your position go into a large or larger-than-expected drawdown without sweating… maybe it is going through a correction phase for a week, for example, and your entry is 300-400 pips out, but then you are in the trade for six months, so it would not make sense to get stopped out then, if your analysis says to you that you are trading in the direction of that trend…
The bad thing about the ‘death by a thousand cuts’ is where someone places stops too rigidly and keeps getting hit, because they either misjudge the volatility, the market conditions, or the instrument (i.e. forex pair) at hand… So it is better to trade fewer pairs if you do not have infinite time at your disposal, for practical reasons, in order to get to know those pairs’ typical (and not-so-typical) movements through the days and weeks, so that you may be able to understand how much breathing room they need… There is no such thing as a ‘perfect entry’, so if you still think that your trade will be in the direction of the trend, but you misjudged the entry, you do not have to come out or get stopped out of that trade if you accept that you will have to wait longer for the drawdown period to turn to breakeven and then profit…
Again, this is only one example of when fixed stops do not work… If you played a ‘grid’ system, for example, you would need exactly that, meaning, fixed stops and profits, because that would be the philosophy of that strategy, so to speak…
Stop losses protect you from ruin, but they can also harm your account, counter-intuitively, if you use them indiscriminately, without any cognisance of how they should be used within the context of the asset class, instrument, and market conditions that you are trading in.
Shoot me now, for I know I have sinned ;p
Happy trading x
It can be moved when you are in profit but you should not widen it only hoping that trade will turn in your way by just guessing it.
If you’re using trailing stop loss strategy then it is okay to move stop loss but you must be ready with the risk of using trailing stop loss when you’re in floating profit condition. Trailing stop loss can prevent you to gain higher profits when the market is moving in sideways condition before it reached on TP point. If me personally, I prefer to set fixed SL and TP point as risk reward ratio than moving it as trailing stop loss.
In my experience when a trader makes a decision they should try and stick with it. That is not to say that they should be bullheaded in the face of overwhelming evidence that they are wrong, but being decisive and consistent proves to be very beneficial in the long run. It’s a fine line to toe.
Well said!
That is interesting what Joseph Nemeth says on Youtube about Stop Loss (he does not use it)
I generally don’t use a stop loss either. I prefer to use trailing stops especially when I’m sleeping.
I don’t use stop loss either.
For me it is like committing harakiri. Suicidal.
Unless I am positive about the trend, I do not place orders.
Otherwise I just wait on the sidelines, just watching.
Do you leave your computer when you have open no stop loss trades?
Very bold newbies here. Trade in, working against me, no stop loss, not even a catastrophic image. Suddenly, out of nowhere, some big shot analyst, half way round the globe, announces his expertise that inflation will be 0…currencies move faster than you can pee…surprise! Think again.
Tim
Moving stop loss is good if you are locking profit but moving stop loss to a more wider spot so that it won’t get hit is not a good practice.