I seem to have a problem. That problem is I don’t know where to put my stop and limit. After a week of trading on a live account I can see that this is my biggest problem.
I’ll buy/sell a position and observe it for a bit. It’ll start to go into negative a big (lets say 10 pips) but the over all trend through my indicators will say that this should be going toward a positive range. Generally I’ll go into positive range, not close the position cause I think it’ll keep growing and see my profits dwindle into negatives. Sometimes this is a fairly large gain that gets dwindle into nothing and than some.
So far this has been my biggest loss factor in trading. Anyone have any advice on where to put stop/limits?
My suggestion would be to decide your stop and take profit level before initiating the trade. Use recent support/resistance, trend lines, fib levels, indicators or whatever you use to pick 1) a stop level that it seems price will be unlikely to hit and 2) a take profit level that seems very possible. If you have these areas picked out before putting on your trade, it’ll limit your emotions during the trade, helping to keep you from getting greedy and going for too much, or getting scared out of a position (or taking a bigger loss than you originally thought would be acceptable).
Excellent question. I think you could probably enter trades based on coin flips and make mony if you’re an expert at stops and limits.
I use support & resistance and trend lines to figure most of my stop and profit levels. Other people uses fib levels, pivot points, or other methods, but all of them work.
Here’s an example of a trade I took. See the orange line at the top? I drew that line on my charts [B]before [/B]the price bounced directly off of it yesterday. That line was the yearly high. Knowing price [I]probably[/I] would change direction around that orange line I went short on the red line, with my stoploss up above the orange line. I closed my trade out on the blue line, which was a support line that price bounced off 2 weeks ago.
The point I’m trying to make is that I didn’t just use a random number for a stop and target. I used the charts to predict a price level that would likely not get hit for the stop, and that would get hit for the profit. The risk was more than the potential reward so I took it and won!
phil838, where did you come up with the value for your lines? How were you so sure that the value would hit resistance at the orange line? How could the use of the yearly high been such a factor for you? I’ve been looking at the fib levels and pivot points (more emphasis on fib levels) up to now and still learning from the whole aspect of things.
For today, 5/26/09 I had a total of 504.4 pips worth of transactions. Currently I’m at +53.4 in the P/L aspect of my pips for the day starting at 18:18 5/25/09 up till 19:26 5/26/09 (last transaction). I could have had a MUCH higher P/L if I would have put stop/limits and closed out the positions before I saw them dwindle into negatives. I’ve seem to been able to dig my self out of any hole which puts me into negatives so far, but it takes large bites out of my profits.
Here is a little trick I do when I am not confident a trade will go my way AND OR I don’t have a good idea of where a SL would go that won’t take me out prematurely. Either:
A. As soon as the trade allows you to, you put the SL at Break Even. Your entry point. This will eliminate all risk from the trade. ( you may get a little slippage, but it shouldn’t be more than 3 pips) You’ll probably get stopped out at -+0 pips a lot doing this, but it’s better than losing a lot of your account when you are new. And then, OR…
B: I wait for a 1:1 ratio gain. If I had a SL of 30 pips, as soon as I can I Set my SL postive at +30 pips. Worst case you get stopped out postive. OR…
C: I wait until a 1:1 ratio gain and then set the SL to BE. This might give the SL a lot of breathing room and let it fly into large positive pips. Or…
D: Set up fib, support & resistance, and when it reaches one put a postive SL in. If it breaks through, wait for it to hit the next one up and put a postive SL in again.
E: Watch the tick chart of your open trade and as you see fit put the SL up more and more positive.
Sometimes this works really well and locks in a whole lot of pips. You can get lucky and catch those candles that spike really high and then come back down into the usual trend.
The lines are nothing more than short term support and resistance lines. I thought (sure isn’t the right word, I lose about 25% of the trades I make this way) it would hit resistance because of experience. Scroll back in your charts and you’ll see. If a line has been resistance or support in the past it is likely to be so again in the future, so it makes a great place to put a stoploss.