Hi there,
If I am trading 4-Hour charts and holding positions open for 2-3 days for a goal of 100-200 pips, would a 50 pip stop loss be sufficient?
Thank you!
i would say it depends on alot of things. you could go to the last bars’ low or high if in a trend. I would only suggest never NEVER make your stop bigger than your take profit in fact you should aim for a higher ratio like you suggested 50 pip stop on 100 pip gain which is a 2:1 ratio. Just make sure to give your trade a little breathing room so it can develop.
I think the key thing is here about the room to breathe, and that in turn depends on the currency pair and how volatile they are. You can either use areas beyond support and resistance, or if you want to set a numerical stop (x pips / trade), look at the ATR and see how much movement there is in the market - the more movement, the wider the stop. Backtest with a strategy and look for the effective range for your strat. So for example, on EURUSD the ATR is nearly twice what it was 6 months ago - and you need to set stops accordingly.
Don’t worry about how many pips you’re looking to make when thinking about where to put the stop - the market doesn’t give a monkeys when you close your trade; all you need to think about is how much could it retrace before taking off in the direction which you predicted.
also, remember that there are other ways to manage risk besides using stop-loss orders. for instance, i like to exit when moving averages crossover.
i always recommend experimenting until you find something that works well for you.
Thanks for your advice guys.
What if the low or high of the last bar is a significant amount compared to the open price of the current bar?
Can I get an interperation of how to use the ATR indicator? What does the number mean? How many periods should I use on the 4-Hour charts? default 14?
Here is an example of when I would have entered a trade, can you interpret the ATR and explain what I should have set my stop loss at?
I feel safer with a stop loss. What if my internet goes out or I can’t get to the computer in time to see if the lines crossed at the close?
Of course you must use a stop loss - it is madness not to. Unless you want to lose all your money.
Here are some hyperlinks to help you. A 100 pip stop loss is used in the daily based OzFx system posted on this forum.
A 100 pip stop loss is OK. This gives you a 1:1 risk/reward ratio (minus the spreads) - assuming you win more trades than you lose.
Average True Range - ATR: Definition and Much More from Answers.com