Suppose market is down-trended, I made a short position on 4 hour chart. I made stop loss for 40 pips.
However, the price candle moves up and down. It can move for 40-50 pips up and down just in few minutes sometimes. And it always touches my stop loss. But after certain time it goes in direction which I predicted. If I want to profit from this trade, I need to make more space for stop loss. 60-80 pis. But how other people implement money management with 30-40 pips stop losses? Its too tight I think.
What can be problem here in my case? My forex broker has a 5 digits after point in the price.
That all comes down to your strategy. You said yourself that in your opinion the stop loss is too tight and that you want to increase that; in order to not violate your risk profile you would need to lower your lot size so you do not risk more than before. Sounds like your entries are off and you should work on that.
Don’t worry, this is a common issue with the traders and sometimes it can get you out of your mind.
If your stop-loss gets hit too often before the price goes in your direction, this means that either your stop-loss is too tight, or you have entered the market too early.
In most of the cases, when the price does a 40-50 pips movement for few minutes, most likely it happens because of some economic event (Job Reports, Unemployment Rates, Payrolls, GDP, etc.). If these market movements touch your stop-loss order too often, you may want to start closing your positions before these events, until you get used to them.
I will agree with thelastbear over here, I seems like your stop loss are to tight, so you should work on adjusting it and of course adjust your trading volume in order to follow your risk management.
A close stop for me is 50-60 pips below the most recent daily low in a long position or above the most recent daily high in a short position. A typical stop is more like 100 pips from those extremes (and the price could be 100 pips further away than the daily high or low). I am short the EUR/USD right now and my stop is at 1.2763. That is 90 pips higher than the 10/03 high of 1.2673 and 135 pips higher than the 10/03 close of 1.2628. Do not fear to use wide stops and to put on small position sizes. Trades within the noise have no edge.
May you find yourself a wealthy financier with a cosmic consciousness and a fat NAV.
Or alternatively… As I’ve said many times before on this forum, instead of a market entry, set a pending order where you think your stop should be and cut what you thought your stop size should have been in half. Then go to the beach… Or mall… Or sleep. Or whatever, just don’t tinker with it.
You’ll lose less (and less often) and make more when your trades are successful. Plus, it takes away the agonizing over an entry.
Stops are about risk management. I use structure to determine risk like one of the guys here just said about market range, I use support and resistance areas. You may find you may have to adjust position size to equal max Dollar risk, this will give you a lot of room to get stops securely below support.
If you are widening stops and increasing Dollar risk then that is normally not a great idea because in this game you must always assume you are wrong. So it is really about managing your risk to ensure your draw down stays manageable even in positive equity situations.
Not difficult to grasp at all. At the heart of it is the fact that most people depend on some sort of confirmation before entering a trade. They then set up a stop based on a recent high or low, and enter.
What happens? The situation described by the thread starter. A move backwards from the intended direction that stops the trade out.
So, say your signal had you making a long market entry at 1.2800 on the EUR/USD, and recent price action shows that the most logical place for a stop is 40 pips away at 1.2760.
Instead, place a pending long at 1.2765, and a stop 25 pips away at 1.2740.
Your stop is smaller, but it’s bigger if you get my drift. And your profit goes up. Instead of having to wait through a 40 pip drawdown, you bank those pips too. Say the initial profit target for the trade was 100 pips away at 1.2900. Your R/R should the trade be successful would have been slightly better than 1:2.
If you did it the way I suggest, your trade nets you 135 pips, but only risks 25. That is a much better R/R ratio.
You don’t always get triggered, but its a nice hands off way to approach the market. And keeps things nice and simple. The trick is to NOT change your method of entry, only HOW and WHERE you enter.
