Where to place SL and TP?

Hey everyone,

My name is Phil and I’m fairly new to the trading scene. Started this sept and growing at a fairly decent rate (I’m not stupid - still using a demo account :stuck_out_tongue: )

MY confusion lies with where to put stop loss and take profits based on what chart you are on.

Logically wouldn’t the SL and TP be larger on a day chart vs an hour chart? What’s an acceptable pip value for each type of chart? I’ve been stopped out by keeping my SL tight just to find out it was going up on a day chart and if I held that position, i would have been in the positive.

I do know it depends on a ton of factors but as an example what would you roughly do?

2 Likes

I might be being a bit bold here but my advice is to not assume that you can calculate a TP, this is much harder than a SL.

Your stop-loss should be at a level at which your TA tells you the probability is that price will not go in your favoured direction. It should be the price which is closest to your entry at which you can say this. From the distance from Entry to Stop-loss you can calculate your position size - this should be such that the loss if the SL is hit is not more than 2% of your account capital, preferably 1%.

Calculating the TP is harder, possibly impossible on TA at the opening moment alone.

For example, suppose you are long on a given pair and price has made 5 consecutive higher closes in your chosen time-frame. When you look back over the last 150 candles in the same time-frame, it has only made 6 consecutive higher closes once. Would you close after the 5th higher close or hold? The TA at the Entry timing would not tell you the answer…

2 Likes

There is so much that can go into determining SL and TP dependent on how you trade. BUT as a simple rule of thumb…

Aim to keep the path as free as possible to your TP and have as many ‘roadblocks’ as possible in between your entry and your SL.

These could be things such as; pivot points, bollinger bands, ema’s, trend lines, support and resistance, round numbers etc.

2 Likes

Logically you are right but it does not make sense to use a SL and TP for a daily chart on an hourly chart. If you are using a SL and TP that you have calculated on a daily chart on an hourly chart you are virtually trading a daily chart so don’t bother with the hourly chart.

I may want to trade an instrument on a daily chart but the risk of such a large stop loss may be too much for me to accommodate. In this case I will drop down to an hourly chart to look for an area of support or resistance that will reduce my level of risk. However my bias for trade direction remains the same as that on the daily chart.

I hope that helps.

Cheers

Blackduck

4 Likes

Thanks everyone! this is all good info for me :slight_smile:

Are you saying if one has made the entry using daily time frame chart then trader should exit (SL) using same daily chart?

Shouldn’t the trader be determining safe exit using a 4 hours or an hourly chart?

1 Like

Wish I would have read Tommors answer when I first started learning. Would have saved some demo account balance and headache of dealing with blown stops.

2 Likes

Hi all,

question on TSL and SL

When you guys enter a trade, do you use TSL or SL and manually adjust as the trade pans out (obviously not widening it). Still demo trading by the way.

So far, i’ve been using TSL, I’ve had a situation where the pair is profitable initially increasing my TSL and goes below my entry point takes my TSL out and return to profit.

Would this be a situation where I should have manually closed the trade? or manually adjusted SL?

Thanks

1 Like

A TSL is highly useful in two situations - for a holding period of a very great number of bars from your trading time-frame, and for positions which might be subject to unexpected spikes.

I don’t normally find TSL’s useful as I never hold that far into the future and spikes on the daily time-frame are not that common and easily spotted.

2 Likes

Your SL should be a percentage of your ATR indicator 10%-20% for day traders and about 100%-200% for swing traders the ATR is best for risk management

2 Likes

I would suggest that you log the trades for each pair you are ooking at on demo and determine the MAE and MFE in each case. These will allow you to get a good grip on SL and TP. If you are not sure what these are just google them and you will find out more info. Good luck for the future.

1 Like

Thanks, just read up on MAE and MFE. I will add it to my trading journal.

1 Like

When trading, our natural tendency is to assume that our trades will go in our anticipated direction either immediately or within the next few candles.
However, countless times, the trade goes against us for as many candles as the market wishes and then turns to our direction.
For this reason I recommend one uses Twice the Average True Range reading as the stop loss. Feel free to add your knowledge of supports and resistances but in any case don’t make the SL less than the ATR reading. I hope this will be as helpful to you as it has been to me.

1 Like

What are these? Care to share what you read?