Stop loss setting

[Skydaemon]

So I was rethinking how I do my stop losses after they triggered a big loss on what would've 10 minutes later been the start of a gain.

Originally I was thinking stop losses should be essentially a tight leash that guarantees the entry point isn't too far wrong. Something on the order of 30 or so pips to protect yourself more than anything else. This seems to have problems with large runs and long time horizons though, and as far as I can tell likely fails if you're trading more than an half an hour.

This thought all jumped up at me on the eurjpy I tried to trade an hour ago which had jumped 400 pips and I wanted to bet on downward. I got killed with a stop loss about 30 pips above my entry and I feel like something failed there stop loss wise. Perhaps I entered poorly too, I'll evaluate that later when I have more data, but the stop loss issue seems more obvious to me at this moment.

Now I'm starting to think that maybe a preferable way in forex is to set stop losses is as a percentage of either the most recent run up, or as a percentage of your expected profit taking.

So take a case where you figure a 400 pip runup, and maybe a 100-200 pip gain on the way back down is possible.

Say I set my stop loss at 20% of the recent run up. That would've been 80 pips. Gives it additional room to run but not without any limit. Also ties risk and reward together, since a big stop loss distance, is only justified in the case of a previous huge run up.

Or maybe 30% of the expected gain on the way back down is better. in this case 30-60 pips.

Or is this just silly and the real problem is just my entry and I need to really pick the top with a high degree of accuracy and keep the tight fixed stop losses.

Gonna think about this some more. I might end up with a multi-approach to stop losses which has different approaches for different types of trades.

[ForexWolf]

No offense, but with 20% and 30% of the account for what you risk per trade, you are thinking suicidally high.... Stop--step back...breathe and think smaller...

Structureing your Stop Losses is in one of my responses in how you set your risk to reward ratios..and how to strategize and structure your trading plans with the objective being to move your stoploss to a break even as soon as you reach a significant validation or profit point. You want to set a balanced reward to your risk... Where to set a stop--well I suggest using basic support and resistance.. Find those key levels--and recent levels hit. Use those as your starting points...but also ensure those points are not right AT your entry or you could be on a bottom that is about to break thru the floor when you think it will go long. You always want to look for Validations and indictaions that a pair is going to move in your favor and direction. Balance how you trade with how you analyze the charts you work with--oh and pick one or two charts only.. Don't try and figure out info from 10 different chart times...each chart time is for different trading methods and time frames.

Many new folks jump around from chart to chart--they try to trade a huge 300 pip move based on a 5 min chart read for levels.. This requires a real world structure to understand how to use the various charts.. if you are trading a 15min chart--the most you should be reasonably looking for in gains is up to 30-50 pips and using a 30-50 pip stop...if you want to find bigger trades--50-100 pips can be found on 1hr and 4hr charts with 50-100pip stops...if you trade a 5 min chart--you should be looking for 10-15 pip gains and so on. It does not have to be accurate round numbers--only close, so to level your risk to reward ratio being more balanced at 1:1 or better.. If you see an entry to go long to target 50 pips being the next major resistance area, and your support level is 55 pips away from your entry--you may be a little late in entering then yes you can set your stop at 60-65 pips just below the support--which technically should give you the range and room to endure a insignificant dip before it turns to the upside... But if you see the next major resistance is 20 pips away and you plan on setting your stop 100 pips away--that means you're reading the trade wrong and you are late or missed the trade. Also--take this to heart--if you miss one trade and it turns--what is to say you cannot trade that same level and plan again? I do it all the time.. The other day I had a long on GBP/JPY..got stopped out when it dipped--but it hit the same levels again and I went long and it worked out perfectly as I had originally planned. So if it first it does not succeed and its a good plan you believe will happen--no reason not to try it again.. I call that the ":second wind" trading--sometimes it need s a running start or has to dip for a second wind before it moves to do what you think it will do.

There is no "missing the boat" in Forex or missing out on a trade opportunity. Unlike in Stocks where a run occurs once every 6 months or whatever, and folks chase trades for that one time big move----runs happen all the time in Forex--just wait for the next boat ride...

FXW

[Anne09]

Well most of the traders have fixed percent to cut their loss at 5 %. If they have $10000 in the account, they would probably take a risk of 5% the maximum loss would be $500. If we are trading one standard lot this would approximately 50 pips. You can also use support and resistance to know better where the specific point of profit is and cut losses.

[goodmast3r]

My strategy is to risk 0.5% per trade. I think you shouldn't risk more than 1% per trade.

[fx-GIRL]

Well I started doing that, now I trade between 2-5 percent per trade, depending on how volatile the market is…
My broker ac-markets has video tutorials on their web site on how to place positions, there is a couple of them regarding stop loss and trailing stop loss.
Forex Video Tutorials | Forex Customer Support
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