What is the ideal stop loss distance I wonder, although I have never traded without sl but I have just been thinking of late if I calculate my position size very decisively and use mental sl instead, will it give me better flexibility and better profits, or is it just outright foolish to do that. Just curious on other traders’ thoughts who might have mulled not using sl sometimes.
How would not pre-setting a SL improve your returns?
I try to avoid using trailing stops as I would mostly be in trend-following positions - so a trailing stop introduces the risk of being stopped out by volatility within a healthy trend.
I agree with this and never use trailing stops either, at least not automated ones. It is a different matter if one is trading longer term and moves the SL closer to breakeven as the market prices unfolds favourably.
The problem with automated trailing stops is not only the risk of being prematurely stopped out by a spike if too close. If the stop distance is far enough to avoid these “accidents” then it also means the market will likely give back quite a bit of the move from its peak before hitting the stop. Not so very efficient.
This question often arises because traders often see their stops hit, only to then see the market reverse at some point and return back to their original entry and beyond. And this is often true. However, there is a principle here. Any trade should have a justification for its existence and if there is no stoploss and the price goes against you such that the original reason for having entered the trade is nullified, then to keep the trade open is only based on hope that it “might come right”. But that is where things can often get messy.
This is certainly not a sin and actually contains the right mentality towards stops. If you select an area for a mental stop then you are deciding where the trade should be abandoned if price reaches there. This can either be because the criteria for entering the trade have been nullified or simply because the value of the loss is the maximum allowed within money management parameters. This should be the area where you would put a hard stop anyway.
But you might feel that you prefer to watch what happens if price reaches such a zone before closing manually (e.g waiting for the current candle to close). But if one does apply such a mental stop it is still wise to have a “safety net/damage limitation” hard stop somewhere beyond this zone just in case something exceptional is occuring.
Just some thoughts.
Personally I like to set my trades, with a SL and TP, and then leave them alone until they reach their destination.
Always use one is my advice. Doesn’t matter if it trails or not in my experience
The kind of stops order you use depends on 3 factor.
- Available drawdown margin.
- Trailing profits / Averaging drawdown
- Scalping / Position Trading
I don’t like automated trailing stops. If I move my SL it is becuase my trade is in profit and has created some market structure which means moving my SL to break even or even into profit should be ok as the movement is in line with the trend and not just volatility
so tough to answer. Depends on if you have locked in the TP you want or youre just letting it flow. It depends if you are scalping or swing trading. Lots of factors are involved
Well that has also been my main approach but several good traders post that what they do is close half the position when profit is reached such that they can run the other half risk-free, with the original SL. Of course you can do this with or without a TP. The only restriction is that the position must be large enough at its commencement that it can be split in half. It sounds good on paper…
There are strategies that work better with trailing stops.
There are strategies that work better with fixed stops.
They both make sense.
Trailing make sense for trendfollowing and generally does not work with mean reverting strategies.
The only way to know what is better is to go for serious algo trading and backtesting.
My 3 cent, I’m using combination both methods for better diversify.
I mean whatever works really
I like to set and forget though.
I was actually doing it all wrong initially, started with M1 where the stop loss took some seconds to trigger which made me rethink its purpose. Now I am not trading such smaller charts though, and have already made a fresh start, but always had this thought at the back of my head and so I shared it here.
Appreciate your response, I suppose what you’re saying is that instead of mind playing over the trade (where we continue trading despite those conditions not being there which made us enter in the first place) we must use stops as a safety mechanism, makes sense.
I am open to different strategies but definitely not going anywhere near scalping again. My drawdown has never been below 40.
Will the use of ATR help here?
I am mostly trading 4 hour frames and sometimes keep positions overnight and that’s it. As per tp, I keep it fixed not far from sl as of now, but I am always open to change. I want to evolve as a trader and not have a fixed mindset.
Are there any EAs you’d like to suggest, and which trading platform do you recommend for backtesting? thanks!
What’s the trading strategy that you use? Please care to give out some details as long as it’s not scalping
One of my strategy, which use trailing stop trading on GBPUSD H1 time frame and is based on OHLC prices