Stop Loss and Take profit levels

[enicolasgomez]

Currently doing some experimentation with a proprietary system that I wrote my self, not a professional trader. I have a big question related to settring S/L and T/P level.

Let’s say that in general the bigger pips separation between the opening price and the S/L price there, the biggest the chance is for a position to end up in the money as it has plenty of “space” to fluctuate back to profit. But also, there’s a bigger chance to face a price breakout, never get the position in the money and closing it but a big chunk of capital being released to the market.

My question is; is there a technique to optimize the S/L and T/P levels so the return the greater income to my invested capital?

[ClarkFX]

Currently doing some experimentation with a proprietary system that I wrote my self, not a professional trader. I have a big question related to settring S/L and T/P level.

Let’s say that in general the bigger pips separation between the opening price and the S/L price there, the biggest the chance is for a position to end up in the money as it has plenty of “space” to fluctuate back to profit. But also, there’s a bigger chance to face a price breakout, never get the position in the money and closing it but a big chunk of capital being released to the market.

My question is; is there a technique to optimize the S/L and T/P levels so the return the greater income to my invested capital?

For fixed stop loss and take profit objectives, you can look at the concepts of MAE (maximum adverse excursion) and MFE (maximum favorable excursion).

[rhodytrader]

For variable stops you can look at a multiple of the Average True Range (ATR) indicator or some other volatility metric.

[ukmax]

I often use a SMA with a tight period and add a slight offset ( shift ) . You can maximize breakout pip gains by allowing price to move as far as it can before retracing. Some spikes can be 100+ pips. Using any other type of method to gauge the TP will result in missed out pips.

[ClarkFX]

I often use a SMA with a tight period and add a slight offset ( shift ) . You can maximize breakout pip gains by allowing price to move as far as it can before retracing. Some spikes can be 100+ pips. Using any other type of method to gauge the TP will result in missed out pips.

I do not believe the OP is asking for a strategy to place his stop loss or take profit, but how to find the most optimal value.

In your case, it could be which SMA period and offset value is most suited for a particular strategy.

[michael77]

Do you believe that market run in this way? We should use stop loss and take profit tools all the time while trading if we do not want to loose our all money or if we are not greedy. I have been in this market for long period of time and my suggestion is to all that you should use those tools carefully after considering the present situation of the market. One strategy may bring profit sometimes but does it mean that we should use the same strategy in each of every day?

[enicolasgomez]

How is MAE typically implemented? Which is it’s period? Is it calculated as an average of given period’s MAE or the most restrictive of all period’s mae is taken?

[simbafx]

How is MAE typically implemented? Which is it’s period? Is it calculated as an average of given period’s MAE or the most restrictive of all period’s mae is taken?

MAE analysis will usually result in frequency distributions of MAE values from samples of profitable and unprofitable trades. Some people assess the optimum value by subjectively looking at the histograms, some take a more analytical approach, looking at averages, and variance, some iterate through a range of values observing the effect on profitable and non profitable trades

John sweenys book, max adverse excursion is a good starting point, lots of worked examples, spreadsheet code etc

[enicolasgomez]

Thanks a lot for your advice.