I’ve been having a little bit of trouble with stoploss placement at the moment. On several occasions I’ve set my stoploss a reasonable way away from my entry, only for it to be activated by spikes and fluctuations. If it wasn’t for this, most of these trades would have been profitable.
Conversely, I’ve found that on other occasions I have placed my stoplosses too far away and have lost more than I should have done as a result. This makes for very poor money management and means that I’ve sometimes ended the day with a loss, despite winning the majority of trades.
What is the best way to decide where your stoplosses should be placed? Should I try placing then near support and resistance levels or near Fibonacci levels (though I’ve never liked fib much - there’s absolutely no reason why price should interact with these levels, even if it sometimes seems to)?
Alternatively, is there a model of formula that can be used?
Simple question not a simple answer. The “optimal” part is what makes the answer not so simple. To get optimal you have a lot of information to consider and a large portion will be related to your experience. An example but not limited to: trading strategy, currency pair, fundamentals, personality and on and on. The link below is how to calculate a stop loss. I would start with that first. It’s what I used when I started. It will keep you out of trouble.
Ok it mostly has to do with your Mind Set when your actually trading. If your still trading out of fear and other emotions it wont matter where you place your stop loss because every tick of the market will be so emotionally overwhelming that if you place a stop loss and it doesn’t get hit and you take a winning trade you’re going to think you can just do that same thing over again. The truth is the market has to many traders in it for anything to work always so give up trying to find the magic stop loss placement. Now with that said the best way to go about placing a stop loss is a simple money management rule for example only risk 2% of your total trade account at one time. Hope that helps.
Whilst trying to devise some sort of money management strategy today, the first thing I found myself asking was “How much do I want to be risking on each trade”. Given the rule, I decided that a maximum of 2% per trade would be a good place to start. In order to keep risk at (or below) this level I decided that the best approach would be to decrease my position size as I moved my stop loss further away. Alternatively, It could be done the other way (basing the stop loss off the lot size in order to manage risk). Would you have done it this way?
First you never move your stop loss unless you are taking profit or breaking even! Next, the 2% rule is not applied per trade but to the combined amount of all entry’s placed or open trades must equal to the 2% of your account in terms of risk acceptance. Now that you know that, then it gets easier to determine lot sizes and stop loss placement because if you are sticking to your money management rules the math tells you exactly how far you can place that stop loss according to how much money is in your account and how much each pip is worth in terms of value compared to the lot size you have chosen.
Thanks for your response. I know that you’d not move your stop loss once placed, but you would place your stop loss differently based on the pair you’re trading, wouldn’t you? I mean, you’d want to place your stop loss further away when trading pairs that see greater volatility, to avoid them being triggered accidentally?
Secondly, I’ve not started trading live yet, I’m not old enough to (legally). When I do start (trading micro-lots), I plan to open an account with £250 ($400) as this is an amount of money that I wouldn’t mind losing. However, 2% of this is only £5 ($8) meaning that even if I didn’t alter my position sizes I would only lose £50 from 10 consecutive losses. Using a demo account, I tend not to make more than 5 trades per day (usually with 2 open at a time) and hold my positions for between 2 and 7 hours. Despite being a relatively small amount of money, I would be risking considerably more than 2% like this. Would this be acceptable given the small size of the account, or is it still a bad idea to break the 2% rule under these circumstances?
So congrats on being a student of the Markets at such a young age. Be prepared to face a bunch of emotional challenges once you start trading real money. The journey of a trader is a hard road to travel do not for one second think trading is easy and doesn’t take at least 4 years of real money trading to be somewhat experienced. Be rigid with your money management rules no matter what the volatility. High volatility just means the market has more momentum to move in the favored direction of your trade. If you get stopped out because of heavy news or whatever you can always re-enter right…? Secondly, $8 can mean different levels of risk acceptance depending on your lot value.
[QUOTE=“Jcandle;565209”]So congrats on being a student of the Markets at such a young age. Be prepared to face a bunch of emotional challenges once you start trading real money. The journey of a trader is a hard road to travel do not for one second think trading is easy and doesn’t take at least 4 years of real money trading to be somewhat experienced. Be rigid with your money management rules no matter what the volatility. High volatility just means the market has more momentum to move in the favored direction of your trade. If you get stopped out because of heavy news or whatever you can always re-enter right…? Secondly, $8 can mean different levels of risk acceptance depending on your lot value.[/QUOTE] Thanks. I’ve never thought of trading as easy money. If fact, being a depressively pessimistic person, scepticism has tended to cushion the blow of losing; hopefully this will remain true when I start losing money.
Do you know of a broker that will allow me to open a demo account with a balance that I determine (so far, the demo accounts I’ve been using have balances of 100k by default), and also allows me to trade micro-lots? Thanks
I’m sure all demo account’s can be traded with any certain amount of money but your gonna have to do the math and keep track of your wins and losses. I suggest just tracking them on a separate spread sheet or piece of paper and pretend you only have as much money as you want in that account if you are thinking in terms of micro account amount. It will be good math practice. Don’t be pessimistic because it’s something not even the richest trader can afford. You need a winning attitude to be a successful in anything.
It’s great that you’re starting out early…and on demo accounts, all brokers provide demo accounts, and on setting it up to particular amount, guess only a few offer that. Did you contact the other brokers and find out if they offer demo accounts where you can customize the account?
On SL and MM, anything between 1% and 2% is good…
FXCM’s Trading Station demo account starts with 50,000. If you download the MT4 platform instead and register directly from MT4, it will let you select a customized amount for the starting balance. And you can use the MT4 demo login with customized balance to login to the Trading Station platform as well.
[QUOTE=“Jason Rogers;566181”] Hi JRC, FXCM’s Trading Station demo account starts with 50,000. If you download the MT4 platform instead and register directly from MT4, it will let you select a customized amount for the starting balance. And you can use the MT4 demo login with customized balance to login to the Trading Station platform as well. Jason[/QUOTE]
I downloaded the MT4 platform from Alpari’s website and when I create an account using it, I only seem to be able to create accounts with Alpari. Do I need to redownload load the platform in order to create demo accounts with other brokers?
