Stop Loss

Beginner Questions
1

Hi Everyone,

I usually trade during the Asian market hours. I usually risk 1% per trade, looking for 1% or more if possible, I have been papertrading for a month now.
This is my dilema, usually when the market goes over 10 to 13 pips on my side i move my Stop Loss to break even, I’m having the problem that the market is pulling back and taking me out and then going back the way it suppose to go. Is it 10 to 13 PIPS to tight? or I should keep doing what I’m doing? usually my hard stop is between 40-17 pips, i go by the charts…

2

Break evens are better than losses. Instead of moving your stop to break even you can maybe move it to -5? While this may not be break even it will give your trade more room to move around and hopefully not take you out too early. You can also wait longer before moving your stop to break even. Just giving you a few more options.

3

I’m guessing your zoning into the Asian re your time frame chart? Could be wrong of course. But here’s the thing. The Asian is relatively slow compared to London/ New York. But it does follow the bigger picture, just in slow motion. Try paper trading longer S/R or TF’s to take into account the 24 hour cycle of PA. Asian is only a small part of the bigger picture. :slight_smile:

4

EDIT: IGNORE THIS POST, its all wrong.

The smaller pip gain/loss, the more your transaction costs will eat up any profit.

Example 1:
if u close trades at +/- 10 pips, and spread is 1 pip cost(eur/usd for example), then 10% of your trade is transaction cost.

If 1/2 of your trades are losers, then transaction costs will be 20% of your winning trades.

That would mean that your analysis would need to show 70% winning trades just to break even. (This seems craaaaaazzzyyy to me, no wonder people kill their accounts)

Example 2:
if u close trades at +/- 100 pips, and spread is 1 pip cost(eur/usd for example), then 1% of your trade is transaction cost.

If 1/2 of your trades are losers, then transaction costs will be 2% of your winning trades. That would mean that your analysis would need to show 52% winning trades just to break even. (This seems much more possible)

Example 3:
if u close trades at +/- 1000 pips, and spread is 1 pip cost(eur/usd for example), then .1% of your trade is transaction cost.

If 1/2 of your trades are losers, then transaction costs will be .2% of your winning trades. That would mean that your analysis would need to show 50.2% winning trades jto break even. (Almost as good as a coin flip!)

As long as you have lower leverage, (account exposure/account balance) you have a much better chance of being successful and not being eaten up by the spread.

The spread is the silent killer of accounts!

Edit:If you pay even a 2 pip transaction cost, then the numbers get even worse!
Example 1: 90% of trades needed to be winners(OMG!)
Example 2: 54% "
Example 3 50.4% "

5

[B]Odi3[/B] Top level post… shame about the 1000 posts to FX-Men HM. Welcome on board the good ship BP! :smiley: Very much look forward to your next post! :slight_smile:

6

Unfortunately only you can answer this question, because if your system is showing postive expentancy and your rules are to move stop to breakeven after 10 -13 pips, then you take the trade and follow your system rules.

If you decide you want to give more room, then you need to backtest or forward test, and make sure it does not change your expectancy. It appears you are focussing on individuals trades, whereas you should be looking at the next 10000 trades. Will this one trade impact the overall bigger picture? More importantly, making a change will it impact your current systems profitability, assuming it is profitable?

The statement above, “breakeven is better than a loss” is why I believe the question can only be answered by you. My system with the testing I’ve done, shows moving the stop to breakeven effects the positive expectancy. Therefore the statement for me doesn’t ring true, but for many others it might be true.
The system I’m trading takes four trades a day, 20 for the week. TP 50 pips, loss 25 pips. The only thing I’m looking for is 7 winners for the week, yes, 7 winners out of 20, 35% win/loss, and that’s my focus. Anymore than 7 great, any less well it is a losing week. Now my mindset isn’t focussed on each individual trade.

So if you understand why your system is making you positive expectancy then I would only be changing things if it improves it, and you can only do this by testing.

7

This is misleading. If you close your trades at +10 pips you have made 10 pips, you dont keep 9 pips and pay the broker 1 pip, it doesnt matter what the spread was, the spread was built into the trade by opening and closing at the bid and ask prices.
All this means is the price would have to make a total move of 11 pips for your trade to complete, the only way the spread could be detrimental to this theoretical system would be if the price consistantly moved only 10 pips then reversed all the way back to the stop loss therby not completing the trade because of the spread. If anyone has such a system I would be interested to see it as it obviously would be highly profitable at 9pips TP lol

8

Thanks SDC for the correction!

I maybe should have described it as: +/-10 pips = either +9 pips or -10 pips on a closed order.

9

I know I already replied to this post but I went away and thought about it then realized the logic behind this whole post is wrong, not just the statement I replied to in the previous one, odi3 if you are basing your trading strategy around these figures I would suggest you go back to the drawing board and start over because your understanding of how the spread works is flawed. The spread is not an extra cost you have to add onto your winning or losing trades it is included in both.

This is also wrong, the spread is included in the trade, if the trade is a winner there is no additional cost, you won, the broker got his spread you got your total expected profit of ten pips, if you lost because the trade was stopped out at -10 pips the broker got his spread you lost ten pips that is all you lose.

That would mean that your analysis would need to show 70% winning trades just to break even. (This seems craaaaaazzzyyy to me, no wonder people kill their accounts)

This is incorrect, it doesnt matter what your strategy is, or how many pips per trade you aim for, the spread is included. If your TP is 10 pips and your SL is 10 pips, and you have 50% winning trades you will break even with exactly Zero profit/loss

Edit:If you pay even a 2 pip transaction cost, then the numbers get even worse!
Example 1: 90% of trades needed to be winners(OMG!)
"

This is wrong too for the reasons I stated above to break even with equal take profit and stop loss 50% of your trades need to be winners…

EDIT: for anyone else who is confused by this, and it is confusing, I too have got this all wrong before while working out strategies and added the spread on instead of including it so remember:
You Buy at the ASK price and you close the Buy order out at the BID price.
Your stop loss for Buys is also closed out at the BID price.
Likewise you Sell at the BID price and close out Sells at the ASK price therfore stop losses on sells also close the order at the ask price.

So consider a Sell trade opened at the Bid price of 1.3000 with a stop loss of 10 pips and a take profit of 10 pips.
The take profit is set at the Ask price of 1.2990
The stop loss is set at the ASK price of 1.3010
Even though the Sell order to the broker was made at the Bid price, at the moment the trade begins your profit/loss is measured at the Ask price because this is the price at which it will close this is why you will see your profit/loss begin at -1 (assuming 1 pip spread)

10

Ah yes, my above post is all wrong.

I was thinking that larger orders were more profitable because the transaction cost(spread) was a lower percent of the total gain.

I failed to factor in that my losing trades would cancel out the benefits.

trade A +10 pips (1 pip cost)
trade B +10 pips (1 pip cost)
EDIT: (this was supposed to to be trade B -10 pips)
After trades A and B loss of 2 pips

trade C +100 pips (1 pip cost)
trade D -100 pips (1 pip cost)
After trades C and D loss of 2 pips

I guess the only thing left to say is that its better to make 100 pips from 1 trade, rather than 10. (because you save 9 pips in transaction cost)

Thanks again!

12

Not in the least… I think [B]Odi3[/B] makes an extremely profound point! Although admittedly, it seems to have been lost in recent posts. :smiley:

The fact remains that over trading on the smaller TF’s will kill your potential gains or at least, severely cut into them. I’ll give you two examples. A trader I know entered short on EU at 1.3750 and has only this morning exited. Last night I entered long at 1.2982 and will probably hold to around 1.3150. In both cases one entry spread. In both examples you could have entered and exited off the 5m, 15m or 1h multiple times and increased your spread costs accordingly. The more times you enter trades over a given longer move the more you incur costs of so doing in addition to any potential gain. The exact same arguement can be made for setting a SL too close to a trade but thats another whole can of worms! :smiley:

15

Thank You for your post, it was very helpful…

16

I believe I made a slight error in my example I originaly posted this:

So consider a Sell trade opened at the Bid price of 1.3000 with a stop loss of 10 pips and a take profit of 10 pips.
The take profit is set at the Ask price of 1.2990
The stop loss is set at the ASK price of 1.3010
Even though the Sell order to the broker was made at the Bid price, at the moment the trade begins your profit/loss is measured at the Ask price because this is the price at which it will close this is why you will see your profit/loss begin at -1 (assuming 1 pip spread)

That would have been correct for a 11 pip TP and a 9 pip SL

I should have said when the Sell trade is opened at the Bid price of 1.3000, [B]the 10 pip stop loss and 10 pip take profit are calculated from the Ask price as it is at the moment of the trade, which would be 1.3001 therefore the stoploss would close the order out at the ask price 1.3011[/B](bid price 1.3010) with a loss of 10 pips and [B]the take profit would close the order out at the ask price1.2091[/B](bid price 1.2090) with a profit of 10 pips.

17

But to make a 10 pip profit, it would actually have to move 11 in your favor… And if you sat up an arbitrary 10 pip stop from the entry point, it would only have to move 9 pips negative to stop you out… So your initial numbers were closer to accurate.

The only difference is the spread in there.

You’re always closer to doom, than to success;)

Because of the spread, there’s no such thing as a perfect 1:1 r/r scenario.

18

I think it all depends. If I use 1H time frame, I will put 20 or more pips. My SL for scalping is usually about 10 pips.

19

As other posters have said, this does depend very much on the strategy used, the timeframe etc. However, given that your strategy obviously advocated trailing up the Stop loss once the trade is underway to reduce loss, that element, at least, is similar to mine, so to address that point: I move up my Stops in a similar way, but look to ‘protect’ them behind a level of resistance, be that a Pivot Point, EMA, trendline, clear support/resistance level. So often, if I place a trade, then it starts to move in my direction, there will be the initial move, then a retracement, then the full move. Had I moved to breakeven, that retracement would have taken out my Stop. However, as my entry is often off the break of a resistance line such as an EMA, I can trail up the Stop once the trade has moved of to, say, five pips behind the EMA. Then I am giving the trade room to breathe should there be some initial retracement, but still have a tight Stop in place should Price just turn against my trade. I have found that having the odd trade stop out for a five or so pip loss pays better overall than having several stop out at breakeven, then go off to hit my TP after I have been stopped out. This all depends on the strategy, but thought I would throw this in in case it was helpful, as I had the same issue a while back.

20

In different terms of trading you should be change your s/l.

in scalp yes max 10 pips. in interaday half of your t/p

21

Thank You all the people that have respond, very helpful information, taking everything under consideration and will try to improve my trading…Thank You!!

23

Stop loss and take profit are two essential trading orders used to control profits and losses in a forex trade. Both orders are designed to decide how much you are willing to risk or make from each trade. This may seem pretty easy at first, but knowing how to apply for each order correctly according to preset risk management rules is what differentiates successful forex traders.

Stop Loss Order?

A stop-loss (SL) order is used to automatically close a trade when the price reaches your set price level. It indicates how much money you are willing to put at risk for a single trade.

This order can help in minimizing the losses if the price begins moving in the opposite direction, and in some cases locking profits as well. It is usually placed with a market or a pending order and can be a number of pips, percentages, or a particular price level.

The stop-loss level is typically set in the opposite direction of your trade. Meaning it is put below the entry-level for long trades, and above the entry-level for short ones.

A trailing stop is a type of stop-loss that secures profits as long as the market moves in the trade’s direction, and automatically closes the trade if the market moves against it. It is set at a certain distance from market price, measured as a percentage or number of pips. It follows the market price until it moves against your Positions.

How to Set Stop Loss and Take Profit in MT4

The simplest and easiest way is to enter both stop loss and take profit levels when placing a new order. Simply enter the precise price levels at which you want to take profit or stop loss.

The take-profit order will be automatically executed when the price reaches your target level, while the stop-loss will be automatically activated if the market moves against your position.

Remember that both stop loss and take profit orders will remain adjustable while your trade is active. However, setting both levels when deciding a trade is much preferable.

SL and TP orders will be shown on the chart and you can easily click and drag any of them to adjust your trade. Alternatively, you can go to the “Terminal” section at the bottom of the chart, right-click on the trade you want to modify, and choose “Modify or Delete Order”. Now you can adjust SL and TP levels by exact price or pips.

24

This is fine but not original.
What about saying something about your trading, strategies and stop-loss tactics?