A lot of trading/traders/systems allow for the trade to hit your stop loss, to decrease your losses/increase profits you need to be exiting before your stop gets hit, hitting your stops is a way of maximising your losses.
My cat and mouse system relies on exiting a trade before it hits your stop, you would struggle to make a profit if you didn’t.
I’m not saying outright that this is the way to go, but what are your thoughts?
it is the way to go, you should know before your stop gets hit whether or not to stay in or get out.
So you mean like me, that a stop loss is a last resort?
For me it’s very definitive when to exit if the trade is not going your way - it turns around/stops, but otherwise, how do you know?
This is an interesting concept to discuss.
For some systems, the stoploss is set at such a position that the trade is allowed ‘breathing room’ before going your way. These systems have entries that are triggered by any number of indicators etc, but what they don’t tend to do is use the price action to guage the entry. Thus, if the price action moves against them for a few pips, it doesn’t matter, as they aren’t using that as a prediction of trade outcome, but instead the correlation of whatever indicators they have loaded are telling them to do.
That said then, systems that DO use price action as a means of triggering a trade would perhaps suffer less drawdown and result in more success by acknowledging when a trade has been entered that is not going to go your way. Of course, this isn’t saying that it is a failed trade, as in my mind any trade entered that has followed the system rules to the letter is successfull, regardless of the outcome, as in the end the system should be rugged enough that losing trades are incorporated into the equation but a net gain is the overall result.
So, if a trader is using price action as their guide, following your advice could very well turn out to be very beneficial. If they are using indicators alone though, it could prove a different story.
I’ll be doing some testing of this theory myself I think.
it really depends on how big your stop loss is.
I’d have thought that would be the last thing it depends on!
truth is everyone has a different style of trading.
not really, because if ur initial stop is 10 times ur TP, r u gonna wait till it hits that, or u gonna exit earlier??
PPF,
Good topic!
I think the ability to cut and run is the crux of FX trading. When I assess an EA, I don’t care how profitable it is, I alway look first and foremost at how it deals with losing trades.
I, personally, favour time based exits. Judging by my best scalper, you do not want to be in a trade more than 12 x Period() down the road. This translates into a 3 hour time limit when a trade is entered on the M15. Extending this further, if you base your setups on the hourly chart, you could be looking to exit within 12 hours. Perhaps this is obvious to most but it was an “aha” moment for me…do you really want to be hanging onto a trade that was based on a 5 minutes scalp in 2 weeks time…that is just hoping and praying, not trading.
I believe that we cannot predict the market and therefore we need to play the probabilities based on price action. If you see a pattern on the chart, the longer you are in the market, the more you are exposed to fundamental risk, which could change the dynamic of your trade.
That said, there are times when an intelligently based stoploss is the best outcome…I think of breakout strategies with reasonable and tight stops. If you stop is just below or above a key support or resistance, would you really exit just before it breaches that level? If your system has a 50 pips SL and your trade is at -40 pips, would you really risk throwing your studies out the window for the sake of 10 pips when statistics has shown that this is the best place for your stop. That implies that you do not have faith in your system and you should revise the strategy, not the trade.
I think after you have some trading experience, you will seem to almost know right away (or at least I seem to) when a trade is going to go against you.
As soon as I feel that, I close it right away. I would rather lose 10-20 pips rather than 50. I mostly only trade the GJ so when its going against me, I know it will take the stop out and go on another 50+.
The old saying “cut your losers short…”
I strategically place my stops right behind major support/resistance levels (from price action only) or a 200EMA. For this reason, it is difficult to exit out of a trade before getting stopped out. I don’t use ‘x’ amount of pips to determine where I will place my stop. I have almost gotten stopped out by about 3 pips twice and I’ve only been trading for a month. I also trade in the direction of the major trend.
Stops still kill me, and bad. I’ve been goofing with fx trading for a couple years now, but when I get a chance to trade, it’s the stops, or improperly placed stops that rip me apart. That and not taking what I’m given when I’m given it.
My trade history looks like a bad joke this month. Losses are at least 10x my wins even though I have more wins. Twice this week, I’ve watched myself get 10+ pips in profit, only to let it turn around for a 20+ pip loss. I’ve read several times (mostly here) to let the trade develop. But my style and availability does not allow that, and I goof alot.
But, you have to tailor your SL to each situation. I use a money management tip that determines your lot size based on required SL for the situation. You basically divide your 2% (or whatever you risk per trade) by the needed SL and you get your lot size. This works pretty good for me. No hard SL’s.
Now if I can learn to take profit in a timely manner, I’d be ok.
Its not your stops ripping you, it’s your entries that are doing the damage… your stops are saving you from further losses.
I’m not sure what you mean by no hard SLs, but currency pairs tend to behave in a simular repeatable pattern. Each SL in terms of pips will be different for each currency pair, but when your trading a particular pair the SL should usually be very simular.
For example I always use a 50 to 70 PIP SL for the GJ and a 30-40pip SL for UC. Never more than that, and as I eluded to earlier, if I sense its going to go to the SL, I will close it out before it gets there.
Some trades require more room then others? Depending on SR levels, applicable trendline, etc, I build my SL based on the individual trade.
If I used a standard SL based on each pair I trade, I would’ve wiped my account by now. But that is just me I suppose.
I just watched my third trade for the day reach a happy amount of profit, then turn around for the old SL. I can pick em, I just can’t reap the benfits. This is standard for me. Most of my trades hit black at some point. I just don’t know when to close them. This trade had plenty of room on the SL, but as the trade goes my way, I move stop in closer. Was too close. Probably not a good strategy. I may be up on pips, but I’m certainly not up on $'s.
How are my entries doing damage by the way?
I’m sorry, I may have been off base on that, as I don’t know what type of trader you are and what your goal for each trade is. I presumed that as I do, look for 50+ pips per trade.
Of course as you know price bounces around a fair amount, and as you mentioned most of your trades are in the black at some point, is that 10pips…20… 30…??
Patience is the key to trading, and its in my opinion the hardest part. I know I can wait all day for the PA to go from consolidation ranging to where to finally gets to my entry point.
It might ony be 30 or 40 pips from where the PA is, so if I believe in my anaylsis, which I do, I could easily jump the gun and enter the trade early and allow a larger SL to accomodate it, only to watch it fall or rise to where I wanted to enter, plus some (hey nobody can get it exactly right). So by doing this, I would have done the following to myself:
How many times have you placed a trade only to watch it fall, hit your SL and then seemingly bounce right back in the right direction as if it were meant just to take you out???
So the long and the short of it, with out more knowledge of how you trade, it sounds as if you are getting into the trade to early.
It’s ok, I’m still searching for a comfortable spot anyway.
Somewhere between 10-20 pips is the best I ever do. I had one trade that traveled 60pips, but trying to do 1/2 a mini lot I accidentally made it 1/20th of a lot. That was a perfect trade with lot’s 'o room. To bad it made less than $2.
But I’m usually in and out pretty quickly. I don’t have a lot of time to trade, so if there is movement when I’m available and the environment matches my rules, I try to get in if I can. Everything is on such a small scale though.
Some of what you share is interesting. I don’t wait. If I don’t enter early, I don’t enter at all, since the move will be half over if I don’t. It sounds like you wait until that point to get in.
How many times have you placed a trade only to watch it fall, hit your SL and then seemingly bounce right back in the right direction as if it were meant just to take you out???
The majority. If I had some hours during busy parts of the day, I think things would be different by now. If I can get in when it’s busy, it has to be quick in and out.
I just keep playing. When the day comes that I have real time to trade, I’ll have some experience behind me.
Hmmm interesting, I would have thought that a stop loss would be placed just under support? Often support gets taken out by the big fellas just to generate volume, thus the reason it is placed under support to allow a bit of swing.
In the past I have done exactly what you are suggesting and tried to save a few $$ by exiting early only to find the market came down to just above my stop and bounce. Thus taking a loss when I should have taken profit!
I am a believer that if you start with a plan, stick with it unless extraordinary circumstances say otherwise, this does not include price fluctuations.
For those who trade longer term methods (i.e. not scalping as you are), there is a definite need to let a trade “breathe”. That is, watch it go your way, retrace into negative pips, generally tease you before finally zooming off to your TP.
However there is an oft quoted adage that stops you being 100 pips up only to watch it all disappear and become a SL hit and it is:
Never take a full bar loss once price hits its first resistance point
What that is basically saying is before you enter the trade you have identified where price is likely to stall before continuing. At the first of these you move your stop so that if price does reverse rather than consolidating and moving forward then you wont get stopped out for your total initial risk.
Where you move your stop to depends on your method, PA, comfort etc. It could be to Break Even, or a swing low, or behind a 50% retrace or whatever.
So, move a stop when it makes sense to do so, but always give your trade room to breathe.
Unless you’re scalping…
my new system Im working on right now for my EA includes if a position is opened and at that moment the prices reverses by 1 pip the order is closed out to lose the spread + 1 pip this is the maximum loss allowed.
I let my stops get hit. In fact, I never use t/p orders. Every profit I make is from my stop getting hit.