I’m facing an issue with my trading system. I’m currently a losing trader but still in the game for several months and didn’t blew up my account. I keep records of my trades and a reccurent mistake is that my stop loss is being triggered way too much. I completely accept that some trades are losers and the SL is being triggered but I have a lot of trades that has been proven to be right in the few hours or days after my SL haas been triggered.
After some analysis, it seems my entry point are correct, not the best but definitively correct. My risk/reward target is ranging from 2 to 5. My first feeling is that targeting a high risk/reward either forces me to place a tight stop loss which explains why my SL are being triggered too easily or my target is overestimated and not reachable.
These missing winning trades hurts financially my account… and emotionally. Again I completely accept losing trades but when my SL is being triggered from few bips, taking the loss then seing the trade going in the right direction is hard.
Did you face the same issue ? If yes, how did you correct it ?
I will test to adjust my risk/reward around 1.5/2, it should increase my winning rate.
You can fine tune your risk management strategy as aiming for high risk/reward ratios can be enticing, it’s essential to ensure that your stop-loss levels are realistically placed, considering market volatility and price action
Testing and adjusting your risk/reward ratio to a more conservative range like 1.5/2 could indeed help increase your winning rate by allowing for wider stop-loss levels while still aiming for profitable targets. You also consider refining your trade timing or entry criteria to enhance the effectiveness of your setups and reduce premature stop-loss hits.
I don’t know where you trade, but it is also a fact that obvious SL levels are targeted by big players, who hunt retail traders. You will also get fake breakouts at these levels, where big player chase liquidity. On obvious support levels you will many times see a long, bottom tail break the level, but the candle does not close below it. Also, try looking at the ATR indicator (look it up, if you don’t know it). This will give you an indication of the expected (historical) volatility of the instrument.
I will place larger SL and therefore adjust my risk/reward and risk management (smaller position to keep a loss of 1%).
I’ve read about the ATR but never use it. Now that you mention it, I will use it to place my SL take into account volatility.
I will monitor the impact on a long term period (1 month at least) and if results are the same, I will adjust my entries.
A risk:reward ratio of 1:2 or higher is ambitious and not at all necessary.
I would go for 1:1.5.
If you can achieve 1:1.5 with a 55% win rate (for the sake of argument, though I’m sure you can do better then that) and you take only 20 trades a month, risking 1% of your capital per trade, you will double your account in less than a year.
My point was not bigger SL, but rather to be aware of these traps. Obvious support levels (or resistance, if short) are exposed to liquidity chasers, which means setting a stop and go do other things is risky. This is not easy. Also look into fair value gaps, if you have not already. I am still undecided about this, but a lot of traders use them rigorously. And yes, 2x or sometimes 3x ATR is an option. Then again, the big guys know this…
This is very good advice. I have extracted these notes from my 2021 Forex trading plan.
Rule 9 R9 Don’t just trade the volatile contracts Understand and account for the volatility of each pair with use of ATR first part of Algorithm. Addresses Money Management.
Rule 28 R28 Learn the basics of Forex trading. It’s amazing how many people simply don’t know what they’re doing. They’re bound to lose, unless they have a strong broker to guide them and keep them out of trouble Complete Appendix 3 education content including quizzes. Understand value of underlying pair ($/PIP risk) when trading and using leverage for each trade. Set SL in terms of ATR (14) x 1.5. (Plan section). Concentrate on how much a trade can lose, not how much it can win.
At 13 minutes in, three years ago, I actually GOT money management. Since then, most of my trading is without leverage at all (crypto currencies). It is the equivalent of trading without a stop loss, but crypto is tens or hundreds of times as volatile as Forex.
Can you provide additional details.
How do you choose your stop? Are you using a technical level, ATR, etc? Or are you basing it only on your entry and risk reward ?
What time frame do you use? Do you use multiple time frames to gauge a stop level?
Do you trade intraday / swing/position? Are you a trend follower, mean reversion trader, or do you use other technical queues for entry?
Also, I know this is probably highly controversial, but win rate might be the most overrated metric when judging system performance over time.
RISK REWARD is garbage. Never choose that, as the most important is where the T/P is going to land up on a trend trade towards a Support and Resistance zone. Use PSAR balls at 0.09,0.50 to trace where the price movement could land when the order flow decreases.
Once you have insight into this trend trade, you can set your S/L in place by lot size. This type of trade can be matched by following previous price action candles on the same time chart.
It is a positive probability that your win rate will improve - because you will have some idea where the T/P is identified.
As for S/L, it is critical that you give adequate breathing space as there is often a spike in the road.
Hope that helps. Out of the last 20 trades as following the above steps, I had 12 winning and 8 losing trades for $179.62 profit using Weekly charts backed up by the 4hr chart as both being the same price movement.
.
@tommor@steve369
All over internet I’ve read that you should aim for at least a r/r of 3 or more but from practice it seems not sustainable because you will either have a tight SL or overestimated target… I will test with a r/r of 1/1.5.
But honestly, 95% of source I’ve read recommend at least a risk/reward of 2.
@WeRideAtDawn
Setting a quantitative rule using ATR will definitively helps my placing better SL because I currently placed them purely on price actions which can be subjective.
@Mondeoman
Thanks for your feedback, it seems you faced the same issue and overcome it. I will have a look at the NNFX videos.
@PanchoVilla84
To summarise my trading system: I look at a long term timeframe daily/weekly to identify market structure, trending, ranging or Chaotic. It defines my trade direction (trade within the trend, long/short in ranging market and no trading if chaotic)
On a shorter timeframe (daily/4h) I look for bullish/bearish tail (pin bar being premium entry point) and I place my SL purely on price actions below the tail or at 60/80 if risk is too high. So my SL is quite subjective and maybe too obvious for big players to trigger… after only I look for my target and aim for a r/r of 2/3 and I either adjust my SL or my target or my position size and there is my issue… I have to tighten my SL or increase my target being overestimated if I want to have a good r/r.
I do swing trading, holding positions from 2/10 days. I mostly do trend following but I can take position in ranging market of nice tails are identified on key level.
@VasilTodorov
I’m comfortable with probability so I understand that you can still be a consistent profitable trader with a win rate lower than 50% if profit are enough to compensate and exceed losers. But currently I miss too much winning trade because of SL placement and I know it is not profitable on a long term.
@steve369
Do you not even look at the r/r? I’m starting thinking to not look at all to the r/r at all to place my SL and target.
@ProfesorPips
I have been trading inconsistently and was not committed since 2016 (I could trade a month in a year and stop). Since begining of the year I’ve been trading consistently every week and with commitment:
Record of all my trades (target, risk, feeling, charts, etc…)
Trading journal
Trading plan with definition of my trading system
I prepare the trading week every weekend, reviewing charts, news announcement, etc…
I feel I’m going in the right direction but this risk/reward (stop loss + target) is my biggest mistake currently.
But 1:2 or higher is just not necessary to be profitable and will definitely increase your total break-even trades. Which is work and trades with a cost for no gain.
After a while you will see that much trading education is designed to make you lose money - but slowly.
Yor RR is to high. Use 1:1. We are not big players and our accounts are small, so 1:1 is totaly fine. Better hit more small wins than waiting for the big 1:5 move (which surely will happen once in a month but hard to handle for small acoounts and most minds)
where do you place your Sls? those big player love to hunt our SL when they are placed obviously so why not trying to set a stop loss by an ATR-Indicator? ATR was a game changer to me.
Happy trading!
@tommor
Indeed… so far best tricks I have learned is by experience rather than in books or tutorial. I’m trading with a small capital so my current loss are the cost for training myself.
@ProfesorPips
I have done a backtest on paper… so quality might be poor
I plan to do an automated backtest based on historical data.
@this_is_ando
Agree, I need to have smaller gains but higher win rate. My SL are placed beyond bullish/bearish tails and I think it is obvious. From all the feedback, ATR indicator is worth to try combined with a lower r/r.
Happy trading too !
For argument sake, maybe you should try the exact opposite of this?
The mantra behind most trend systems is “let your winners run and cut your losses quickly.”
This results in a system characterised by a low win rate but a small % of huge winners that more than make up for the small losses over time. You end up getting a distribution something like this:
60% small losers - 20% breakeven - 15% small winners - 5% huge winners
The reason I bring this up is because if you are in fact a trend trader, than you should EXPECT your stop loss to be triggered more often than not. Too many times I see traders get hung up on their winning %. Remember it’s positive expectancy you seek, and winning % is just a part of the formula.
This realization can be a key turning point because it changes the way you approach system building.
One last thing that most here will probably disagree with me on is setting a fixed r/r.
If your chasing trends, why cap your potential upside? Especially if your TP has no technical reasoning other than being a fixed multiple of your initial SL. Let those winners run! Let the market tell you when to exit.
Other than that, it looks like you have a solid foundation already. Best of luck to you!
You might want to think about widening your stop loss to cut down on those annoying premature triggers. Also, try tweaking your risk/reward ratio to around 1.5 or 2. It could help you win more often. Give it a shot and see if you can find a sweet spot between taking risks and getting good rewards.
