A question about stop loss

Beginner Questions
1

Hi I am new to the Forex trading. What bothers me most now is when to exit. For example, I use 2% as my stop-loss. For most of the time, there were price swings after I opened a position (unless it’s a very strong momentum), it’s easily to hit my stop loss limit. Although all the indicators suggest that the trend might continue, I have to exit because I want to stick to my rule. Again, most of the time, the trend continues very well after my exiting. I could have won many pips, instead of loss.

This question is also relevant to the time frame selection. Does longer time frame mean you hold the position longer? If that’s the case, will you experience more price swing?

I am really curious about how the experienced trader handle this situation.

Thank you very much for the advice.

2

You are looking at this slightly the wrong way.

You need to find out what S/L (stop loss) your system will tolerate,
then calculate your 2% to equal this amount of risk.

eg if 2% = $200 & you are allowing 50 pips S/L then you need to
open a trade with a pip value of $4/pip.

3

Could you give us a little more information about how you’re setting up your trades. It’s great that you’re following the 2% risk per trade rule, and even better that you’re sticking to it, but how are you figuring the amount of pips to use for a stop loss? What time frame are you using? What pair? Basically walk us through one of your typical trades… :slight_smile:

And trading higher time frames doesn’t necessarily mean you’re holding trades for long periods of time. I trade off 4H charts and most of my trades last less than 1 hour.

4

Lots of things you have just to try out on a demo account until YOU feel comfortable with. The YOU is important because what somebody thinks is a no brainier somebody else can’t get the hang off it.
Example: I tried No S/L and when I was wrong I was wrong on the trend. I could have gained a quick 5 pips but then it turned on me big time. I lost 140 pips and then the tide turned again and slowly over 16 hours it came down to my original start.
Conclusion: Should you use SL at all? Some people in here and on Noobs say they never use SL. They just watch what is going on. Some make a mental SL so they would not “trip” the broker to let him know to hunt for his money and some say always use SL 50 pips or more. You will get all different answers. The problem is: What will you do when you trade with real money?
Personally: Try on a demo account till you find YOUR “system” first (RSI, STO, Bubble, Sunday Breakout, DBO…) once you know and feel comfortable with the basic chart system for YOU then start play with SL.
This way you find out if you blow your demo out. If you blow your demo out it probably means your basic chart system is not there yet, which includes automatically Money Management. Meaning you buy/sell lots are bigger then they should be.
Get the demo and make sure your demo money is the same you intend to trade with when you go for real money. Don’t take the 100’000, adjust it down to the 500 or 1000 units (Dollar) what you will be using after demo. You will be surprised, in one moment the broker want let you trade that 1 or 2 lots anymore. You have to settle for fractions and the money grows slow.
Also looses slow:)
Then switch to real money.
One step at the time, anything else will fall into place over time.

AND READ (LEARN) A LOT OF THREADS RIGHT IN THIS FORUM. :smiley:

Happy Trading

5

BTW, in the end I made money on the trade but again only because I let it ride and walked away from the computer. If I would have watched I probably would have ended (closed) with -pips the trade.

6

Thank you very much for the message. I am moved by the warm-hearted people in the forum. I am surprised to see these responses so quickly. There is some more information about my settings. I am trading EURUSD on 30 minutes time frame. Because I am very new, I haven’t found a good system yet. Basically, I use the combination of MACD crossing and PSAR to determine enter. It seems to be correct in identifying trend in most time. But I found very often the price will go against me after I entered, and hit my stop loss easily. If I should have waited, the trend will continue. However, 99% of the time, I exited. :frowning:

I deposited $1000 in the account (it’s much less now), so I close my position if I lost 20 pips (i.e. $20).

Any suggestions will be greatly appreciated.

7

I see your problem now. Take a look at this picture of a good upward trend on a EUR/USD 30 minute chart…

Your problem is that 20 pips is too small of a stoploss. In the picture you can see that that pair, on that timeframe, has retraces of [I]way [/I]more than 20 pips before it turns around and goes back up.

If you’d had a larger stoploss, say around 120 pips, you could have rode this trend all the way to the top.

I think the variable your missing is lot size. Just because you want to risk $20 doesn’t mean you have to have a stop loss of 20 pips. If you trade less lots you could raise your stoploss while maintaining the same risk.

Take the amount you want to risk and divide it by the stoploss you need. In this case that comes out to be $20/120 pips which equals .16. So you’d want to be trading 16 cents per pip, or .16 mini lots, on a trade like this.

8

Looks like I nailed your problem on the spot.
Suggestion: stop real trading, open demo and learn/read, learn/read…
then get the system you would like, reduce the lot size and go back into real money.
If you have all day, then in about a month you should be able to trade for real again.
BTW fridays I trade only if I had a trade left from Thursday and try to close it out. Otherwise no trade on friday since the market goes to “sleep” for the weekend.:slight_smile:
Happy Trading

9

EUR USD is fine.
I don’t trade the yen because of high price, meaning I would have to use less units ($).
opportunities are everywhere. (Gain :smiley: or Loss :eek: )

10

Hi Oskar and Phil838,
Thank you very much for the reply. I know I might be too anxious to jump into real trade. I have a demo account, but I feel it’s very difference experience when doing real trading. For example, if using demo, I will just sit there and watch, not worrying about stop loss at all. So I gave myself some money to practice, hopefully this will improve me better.

As to the stop loss, I am not quite understanding your concept. My lot size is always 1. $20/120 pip = 0.16. Would you please tell me what does this mean? Do you suggest that I should use 120 pips as the stop loss based on EUR/USD’s behavior? Is this consistent with the rule of ‘risk only 2-5% of your account’?

My other question is about the time frame selection. I know the longer time frame will have less noise, but does that means you will loose a lot of trading opportunities? My feeling is that longer time frame is more conservative. It can prevent you from jumping into a false trend, but on the other hand, there is a lag for it to show the trend. Is my understanding correct?

I know I am too fresh for this. These questions might appear very silly. Thanks again for your generous help.

11

The idea of using a demo is to try to replicate the real thing without the money loss risk.
You are not learning properly on the demo if you do not use it properly.

As to the stop loss, I am not quite understanding your concept.

[B]Here is the solution to that problem…[/B]

[B]The only thing I wish to contribute my teaching skills to give readers a simple formula for calculating lots to trade.[/B]

The formula is L/l.

The letter “L” stands for loss!!

The little " l " also stands for loss.

So it is an easy formula to remember.

The formula expanded is Loss ($)/loss (pips).

Here is an example to show how it works…

  1. Lets say you have a trading capital of $10,000

  2. Lets say you want to risk 2% of your capital.

  3. 2% of $10,000 is $200

  4. Lets say your trade (PCI stop loss) is risking 25 pips.

  5. Now apply the formula…L($)/l(pips) = $200/25 = 8

  6. 8 what?
    That is $8/pip.

  7. Check your accounts.
    A standard lot is $10/pip…this is too much.
    A mini lot is $1/pip.

  8. You can, therefore, trade 8x1 minilots = $8/pip as required.

[B]You may want to print this page and keep it for reference. [/B]

Adapted from #1566, page 157 from

http://forums.babypips.com/newbie-island/10812-joy-candlestick-trading-learning-experience.html

. I know the longer time frame will have less noise, but does that means you will loose a lot of trading opportunities?

No!
Trading opportunities depend on your choice of trading system.
There are trading opportunities on all timeframes.

It can prevent you from jumping into a false trend, …

False trend??? :confused:

[B]A trend is a trend.[/B]
A trend is a trend regardless of what timeframe it appears in.
There are trends in all timeframes.
Trends are different in how strong they are and how long they last.

[B]The main problem with your trading is that you are not using a large enough stop loss as Phil838 told you.

Generally, the longer your timeframe, the larger your stop loss.

This is because the longer timeframe summarize the happenings in the shorter timeframes.[/B]

12

I agree with Oskar, you need to stop trading real money right now!! These are basic forex concepts and you shouldn’t be trading real money until you understand them.

Your problem is you’re not understanding lot sizes. You may always be trading a lot size of 1, but you don’t have too! You can trade 2 lots, 0.5 lots, or 1000 lots. This is how you control your risk.

Yes, I’m suggesting that you should have used 120 pips as the stop loss based on EUR/USD’s behavior at that time, but I’m also suggesting you trade 2-5% of your account. Both can be done at the same time by varying your lot size.

Once you’ve figured out what dollar amount you want to risk then you divide that number by the stoploss. So if you want to risk $20 (2% of $1000) you divide that by 120 (your stoploss) and you get 0.16.

That’s the dollar amount you want to risk per pip. If you have a mini account, which I believe you do from your numbers, then 1 lot = $1 per pip. Since you want $0.16 per pip you’d then enter a trade with .16 lots, not 1 lot.

Does that make sense? If not let me know and I’ll try to explain it better. It may also help if you reread the Babypip’s School section on lot sizes.

13

All the responses are very very helpful. I will go to the demo, and read more.
Thanks everybody for the great help. Have a nice weekend!

15

Except, of course there is a except and the except is his money with the broker, it runs out before it can hit a reasonable SL. Why? because he traded more then he can chew on :eek: and the account is already depleted. Brrrrrrrrrrrrrrrrr. Why? because he says that he is “jumping out” as soon as $20 are gone.
linrong99 YOU SHOULD GO BACK TO BASICS and stop live trading.
of course you can keep on going and hope for the best (miracle happens :frowning: ) Maybe :slight_smile:

16

Most brokers allow lot sizes smaller than 1. I know for a fact that Oanda and IBFX do. Any broker than doesn’t should at least offer a micro account where 1 lot = 10 cents.

On a micro account, if it didn’t allow fractions of a lot, you would just round your 16 cents down to 10 cents and trade 1 micro lot.

17

Phil recommend IBFX and yes, you can go .5 and less. Make sure you adjust the demo to the $1000. (compare apple (demo) with apple (real money).
Platform shuts down in between for a short time (Don’t know why? :rolleyes:).
Good Luck