Setting Stop Loss to tight

I know everyone has a different approach, strategy and preference when it comes to stop loss orders. I have come across several forum posts or blog posts where traders set a stop loss order less than 10 pips away from their entry. I know scalpers keep them tight.

I am just assuming that placing it at 10 pips or less often leads to a trade being stopped out way to pre-mature, but again that is my opinion. It also appears that you are more down the gambling path with a stop loss which is too tight. On the other hand I guess if you get stopped out too early in 90 trades out of 100 and used 10 pips you have lost 900 pips and if your 10 profitable trades earn 100 pips you are profitable in your account (assuming you trade the same lot size), but then you are not a scalper. I know it is possible from a mathematical point of view and those who can risk 10 pips to make over 100 on a consistent base, not bad and keep it up.

I do think that unfortunately there are more traders who risk 100 pips to earn 10 pips.

Your stop loss should be dictated by the strategy you are following. If you are following a strategy that is meant for a 5-min price chart, then yea, a 10-pip stop may be ok. Will you get stopped out pre-maturely? absolutely. And that is part of the strategy (you will have a % of loss trades).

I go by the principle of “trade validity” … hopefully you are entering the trade based on some rules. I.e. your trade is valid. Then there have to be conditions that invalidate the trade or makes it “bad” to be in. At which point you should exit out.

A professional trader will not ask “Is the stop too tight” … He will ask “Does it make sense to be in this trade given my strategy.” If not, then peace out. There will always be another day to trade.

Good luck!

Seconding what Smartpipping said. Stops are determined by your strategy. I trade Price Action so my stop goes behind a S/R level and/or candlestick formation. That may be 75 pips that may be 125 pips on the daily charts. Scalpers that set for a 10 pip stop loss are typically going to aim for far less than 100 pips per trade in profit. From what I’ve seen it’s usually more like 15-20 and then be out of the trade so it doesn’t whiplash back on the trader which is always a threat when you trade low time frames.

Of course it depends on strategy and the trade, but personally I never set a stop loss at 10 pips. I am not a scalper and to me it makes no sense to try and time your entry to the point where a 10 pips SL makes sense. Others have a different approach.