Discussion on setting stops losses and risk management

Beginner Questions
1

Hi everyone so I am new trader, and I had just read on babypips lesson on stop losses, and I’m little lost and wanted to see what others thought.

So the general rule is no more than 1-2% risk on each trade, however I’ve seen some example where the stop losses were wider than this, even on the lesson on stop losses suggest to analyses what the chart is telling you and set a stop loss on that info. So for an example I have £950 account so I would risk £19 per trade, however if I open a position with £500.00 I would be stopped out rather quickly, is this where the position size comes in? For instance so I would then change the position to 10% of my account £95.00 and then with the 2% risk rule stop loss would then be a lot wider on this position. And the work to 1:3 risk reward ratio.

I’m interested in what other traders do and how they apply stops and risk management. And on a side note I’m pretty fresh trader and looking at trading on the bases of working full time and trading as well so would this be swing trading, not too sure where to begin with on building up a Strategy for this type of trading, also would the day, 4hour, and 1hour charts be the best too look at as well?

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2

£19 is 2% of £950, so you have understood this part correctly.

It seems like there’s some confusion here about how you would choose your trade size to risk 2% of your account.

If we look at EUR/GBP for example, on a standard lot (100K) position, you’re risking £10 per pip. That means you couldn’t even place a trade of this size and limit your risk to £19 since the spread cost alone would take you to close to this amount.

If you open a mini lot (10K) EUR/GBP position, then you’re risking £1 per pip. This would allow you to risk 19 pips. This might be enough if you’re scalping, but for most trading strategies, you might want the flexibility to risk more pips.

If you open a micro lot (1K) EUR/GBP position, then you’re risking 10 pence per pip. This would allow you to risk 190 pips. For this reason, this might be closer to the trading size you might want to consider depending on your strategy.

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3

You can widen your SL in terms of pips using the same 1% to 2% risk by lowering your lot size.

Figure out what a 1% to 2% risk is for you by multiplying 1% or 2% by your available dollar amount. This will put a dollar amount on your risk. This dollar amount should remain constant regardless of # of pips in your SL.

Then figure out how many pips from entry to SL while accounting for spread. Divide dollar amount by the # of pips in your SL…

This will give you the proper lot size and will allow to widen your SL in terms of pips while keeping the same $ risk%

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4

It depends whom you ask.

The general rule amongst forum members might be 1.0-2.0%.

Remember that 90-95% of forex traders are losing money.

If you asked only those among the 5-10% making money, the answer would be more like 0.25-1.0% instead, and this is really worth knowing.

Exactly right.

You’d know from your original decision about your risk management for your trading, and work out from the chart or from your trading plan what your stop-loss needs to be, and then calculate the position size AFTER knowing that, and your maximum permissible financial loss per trade. In other words, you’d avoid increasing that risk simply by reducing the position size.

Again, be careful not to ask this and take the consensus of opinion as being “right” and never forget that in forums, 90-95% of the people answering your questions are losing money.

I apply stops according to the chart, putting the stop where I want to be taken out of the trade if it doesn’t look like being a profitable one. If I’m not able to decide that clearly, before entering the trade, I give that trade a miss.

My own risk management percentages vary according to the type of trade it is, but my highest ones (the ones with the highest win-rate) are something under 1%. And my lower ones are something further under 1%.

With a £950 account, the main aim isn’t to make income that means much or affects your life - it’s to gain experience and practice.

Maybe.

Those, or maybe even 1 week, 1 day and 4 hour.

You’ve asked several different questions here which relate to rather different aspects of trading.

This other thread mentions a couple of them and might help you. How Realistic is This?

It would be a really good idea (at least!) to practice all this money management stuff on a demo account for many months, until you have it all absolutely down pat and perfect, so that it’s not a distraction, before using real money.

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5

I think this is very true for the vast majority of top traders.

My min is 0.30%, my average is 0.50% to 0.75%, and my max is 1%.

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6

You are right every one had his own plan for setting stop loss and risk management. I usually set it at 20 to 30 pips, My risk is less than 0.5%. With practice we can know what risk is suitable this time according to our capital and targets.

7

So you use a set 20 to 30 pips and adjust lot size to arrive at a .50% risk?

Do you use any other TA or FA when determing your SL?

8

Someone talked about a 150pip stop loss. I think the number of pips is dependent on the time frame. At the same time I wonder why traders say the RR should be 1:1 if one trade has a stop loss of 150 pips and goes the wrong way and your next trade has a stop loss of 15 pips with a RR of 1:3, your still loosing. I think for a particular strategy the stop loss on all trades should be a standard 20 pips for example so that targets can be calculated and profits anticipated in reference to the 20 pips.

9

Good answer thanks :slight_smile:

10

It also all depends on your style of trading.
I find using tradingview you can easily set up your R:R ratio.

11

I have always used TA-based SL levels, using the high/low of a swing high/low day as appropriate. This can mean SL’s are a very large distance away from entry and two entry-SL distances even on the same pair and only a few days apart can be vastly different as they are unrelated to each other.

However, I am now trialling use of stop distance 2 x ATR20. It seems rational to use a volatility-related SL distance, so far so good.