Are "stop losses" killing your trades?

This is counter intuitive to what most of you probably have been taught but for beginners, stop losses can be more dangerous then the market itself.

In order for us to properly use stop losses we must

  1. understand market flow
  2. have a general working knowledge of basic price movement

A beginner trader (tell me if this has happened to you) will have a solid set up will take what actually is a decent trade but then either something causes the market to had a pulse in another direction or the market is testing its support and resistance at certain levels.

At the point of this movement which is counter to the trade, beginner traders will either cut and run, or their stop loss will be triggered, so the trader has effectively put themselves in a position where no matter what, even if you have the perfect set up, the trader will still loose.

Basic beginner problems that we have all gone through to get to where we are today, the problem is people will try to get really technical when it comes to answering problems like this, the true solution is to better generalize your knowledge of market flow. don’t dive deeper into different indicators, step back and look at the bigger picture!

THANKS!

Our World FX

I am sure this is a very common situation. I have found that very often after getting a trigger to enter a trade the market starts off in the right direction for maybe 8-12 pips and then starts to reverse back towards the opening level and sometimes even exceeds it before then continuing in the direction of the trade, It is psychologically incredibly difficult to watch a reasonable start evaporate right in front of your eyes and it is almost impossible not to exit the trade when there is still at least one pip left! :slight_smile:

Unless the market is moving rapidly I usually wait for this first pull-back before entering.

Setting stop levels is an art of its own and I guess should at least to some extent be related to the typical pull-backs identified during testing one’s methods. Of course there will always be the exceptional spike that stops out just about everyone! :smiley: Trailing stops are also difficult to judge and should be related the typical retracements in the TF being used - too close, and you get premature stop-out, too far, and you give back a lot or all of your profit…

Its funny, something so basic but seems to be under explained. Once I latched onto this concept I started making profits pretty steadily and easily



Tight stops don’t limit losses if they also increase trade frequency and reduce your win rate.

Noise Kills.

-Adrian

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Jack and Jerry definitely get it

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I have always said that most have no idea hoe to use a SL or use it wrong. I have also said that successful traders use a SL to exit a trade for a profit as it is meant to be and not to slowly bleed your account to death. I have only used a SL to close a trade for a profit. In the end everyone needs to decide how and if to use one.

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Using a stop losses depends on the traders experience ,more experienced traders are using them only to protect their profits and and less experienced traders are using them not to lose to much according their risk management. If you are using stop losses and they are getting trigger more often that means your trading strategy is not working.

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Good comment Rambo35! This [I]might [/I]sound like its so obvious that why even bother to mention it but in fact stop-loss management is probably even more difficult and critical than good entry/exit management - and often is one of the most critical factors whether a strategy is profitable or not!

Firstly, I would say that [I][U]some [/U][/I]kind of stop-loss should ALWAYS be used even it is just a deep-set safety net in the event of communication failure in a fast-moving market. If your system goes down then you must have some kind of fail-safe loss protection already in place just in case!

But the normal stop-loss position is always a compromise between giving the market sufficient freedom to “breathe” without hitting the stop by accident and minimising the loss when the market actually [I]does [/I]turn. Whatever kind of stop is used, if it is hit then it always means that you missed the peak by at least the stop distance (trailing stop) or even more with a fixed stop.

I think it is very important to back-track manually and actually continually journalise the maximum profit and maximum pull-back that your particular trading method produces. By doing this you may find that, for example, on a 5M system the typical pull-back after entry signals is about 2-10 pips, therefore a stop-loss should be at least 12-15 pips, whereas a 30M or 1H system may produce typically 25-40 pip retracements during a trend. For example, I believe HUCK’s Trend-Catcher system on this site uses a 1H chart with a 50 pip stop-loss?

But stop-loss management is much more than just this one-off calculation. This ONLY gives you the default stop-loss level. Once the trade is placed it is [I][U]imperative [/U][/I]that you immediately study it and adjust it in the context of recent highs/lows or trendlines or Fib levels or whatever else you use to calibrate your market. And it doesn’t stop there either, your stop level must be watched and adjusted (in the direction of the trend) as the situation changes.

However, if the stop level was placed correctly at the start of the trade I do not recommend increasing the loss potential from that level by increasing your stop-loss as the trade progresses, in other words,stops should only be either stationary or moved in the direction of your trade if and when it moves into a profit state.

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How could you post without registration?

Say about stop loss killing our trades, actually I did trade without stoploss several times and it killed my account :frowning:

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Sorry to hear that Amandaw - are you still trading? If so, good to hear it :), and how are you now managing your trades in the light of your previous experience?

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Only a demo account trader, but I was stopped out 12 trades in a row. Eliminated stop loss, first 2 trades turned against me 80 pips and proceeded to hit my target. The following trades have not gone against me more than 25 pips and have either floundered, only to hit or went against and manually closed. Stop loss is a major psycho play in trading…affects my brain greatly. Al brooks says it best: " I put a catastrophic stop loss in place, but I never allow it to hit". What that allowance is for a trader is up to the individual. As manxx says, a safety net: to show up the next day…you never know.

Tim

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Stop losses are extremely necessary, but to use them perfectly is an art that only comes after experience. As most of the traders trade inter day so they cannot fully cover the daily movement of most of the pairs they are trading. I shifted to trading on daily time frame and found out that stop losses are not hunted that much. Trading price action and placing stop losses on good horizontal levels has increased my trading efficiency greatly.

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Thanks for info. I too, practice with horizontal levels, but have noticed tips of wicks are the boundaries and not the bodies of the candles. Today, gbp pip to pip, wick to wick, and down it went. From now on, wicks will be my top and bottom levels. From there, I will place my stop loss.

Tim

Wick should be considered as last high or low, body open close is not the extreme points. For taking horizontal levels I also consider the wicks and not the bodies.

Kinda disagree with the title…

Stop loss is a must for newbies, except if they’re know where to cut their loss and where to take their profit manually…