This has been a kinda issue for me. Please I would like to know how you set your S/L and T/P. Do you make sure they have the same difference with the buy/sell price? How do you do yours? I know how to set them up,but then how do you know where to place them? Do S and R levels help?
that’s a good way of choosing what your SL and TP will be, based on past levels of support and resistance
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Depends on your strategy. If you use support and resistance in opening a trade then stop loss can be round S/R. Or you can use end of candle or previous high/low. Or place it depending on your risk reward. If you’re aiming 20 pips then stoploss can be maximum 20 pips so 1:1 risk reward.
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Okay, let’s see if we can give you a good example.
The chart below is the AUS/USD 1-hour. You’ve decided to short the pullback from the last breakout (very reasonable). You took the trade at market as it was heading up. Where’s your stop? Let’s take a look at two examples of where I might place them:
The BEST stop you could order here would be at the last MAJOR swing high. In other words, the last major lower high in the down trend. If this were an uptrend, it would be the last MAJOR higher low. In this case (the thick red line) We are at about 38 pips from entry. FAR AWAY! If you trade 100, 000 units (1 lot) and you normally only spend $100 to get stopped out, then guess what. Now it’s going to cost you $380! So you have to now make an adjustment in your position size. Instead of trading a full lot (100,000), you will trade .26 (26,000) in order to get at your maximum preset risk of $100. In this case, you have opted for a higher probability of making some money (less likely to be stopped out), in exchange for a 1:1 R/R instead of maybe a 1:2 R/R.
Option 2 is in the chart below;
We’ve lowered the stop to a MINOR lower high. It’s still acceptable since the last breakout was fairly strong. The stop here is about 15 pips from entry. We now have to increase position size to 67,000 in order to have the maximum $100 risk on this trade. This option however, has slightly less probability of succeeding since it will be a bit easier for the market to stop you out. The trade-off is that you have a better risk/reward profile.
These two scenarios assume two things;
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You know how to read price action
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You have the discipline to place your stop far enough away to let the price find it’s way to your profit target.
Some traders prefer high probability, low risk/reward ratio.
Some prefer low probability, high risk/reward ratio.
IT IS VERY SELDOM YOU WILL GET BOTH! You must be at peace with that early in your career.
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There is no fixed target to me; I basically set my SL and TP according to the position of nearest support and resistant levels!
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As ever I am long-term trend-following. This affects how I think about SL’s. I always enter a SL but it is so far back from entry that it will probably never be hit, so I will rarely take a full loss of the amount I propose to risk - 1.5% of my account capital. More likely in a negative situation that price movement will cause a deterioration of the TA and this will give me a manual exit for a third to a half of my original risk. The SL of course is used to determine the size of my risk, 1.5% of account capital.
Because I’m following trends, when I get into a position I am assuming that either the trend will continue for ever or that it will continue after a minor pull-back. With this in mind, I never set a TP but I do exit after price has moved strongly in my direction and immediately start looking for a new entry point which will trigger the very next day if possible. Setting a TP makes no sense if you are still correct in your analysis when you get there. I never calculate r:r, as this makes sense only in terms of a one-off trade in a market which you enter and then wish to leave, such as a swing trade within a range channel: whereas I only enter trends which I wish to re-enter repeatedly.
Take trend-following or leave it but the essence is that your SL and TP tactics must match your trading strategy. do not blindly set a SL at -35 pips or a TP at +70 pips or juggle the two to always get a r:r of at least 1:2 unless it makes sense in the wider context of your trading style.
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Perfect; swing high and swing low can play really incredible role in this case for sure!
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This is something I have to implement and adhere to.
I’m thinking about this… So if you manually exit at 50% or 60% why not set the stop loss there?
KC
Most importantly because that surrenders the exit decision to price rather than my view of the TA and how it matches my rules.
Secondly, I want to set a distant SL so that I can then calculate back from there the size of my position. Alright, yes I could set the SL at 50% of the distance I currently use but I should then reduce the position size to 0.75% of account capital. Right now I’m setting the initial SL at 3ATR20 from entry. This is distant but makes sense in a trend-following strategy: it allows room for price to pull back but still leaves me the choice as to whether to exit there or not.
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Well done; traders need to understand this type of calculation with the details; the motto is; trading with money management rules!
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