Any thoughts?
Setting Stop Loss to tight
I know everyone has a different approach, strategy and preference when it comes to stop loss orders. I have come across several forum posts or blog posts where traders set a stop loss order less than 10 pips away from their entry. I know scalpers keep them tight.
I am just assuming that placing it at 10 pips or less often leads to a trade being stopped out way to pre-mature, but again that is my opinion. It also appears that you are more down the gambling path with a stop loss which is too tight. On the other hand I guess if you get stopped out too early in 90 trades out of 100 and used 10 pips you have lost 900 pips and if your 10 profitable trades earn 100 pips you are profitable in your account (assuming you trade the same lot size), but then you are not a scalper.
I know it is possible from a mathematical point of view and those who can risk 10 pips to make over 100 on a consistent base, not bad and keep it up. I do think that unfortunately there are more traders who risk 100 pips to earn 10 pips.Hmm Interesting indeed, for medium term day traders, the SL is usually 30 to 60 pips with a R/R of 1:1 or 1:2. Risking 100 pips to earn 10 is rather too low and risking 10 pips to earn 100 is something quite new to me. Any ideas?
Hello Rambo35!
Without a doubt, your risk/reward ratio is going to play a key role in your trading. The hope is to have a greater amount of reward for every unit of risk, but there are plenty of traders who ignore this.
A lot of it comes down to your preferences and estimated probability of success. If you feel you will be profitable on 50% of trades, you want to have more than 1:1 risk/reward – otherwise you’re sitting on 0 profits, or worse, losing money (e.g.: limit of 100, stop of 100 OR limit of 20, stop of 20, etc.)
If you feel you can be profitable on 67% (2 out of 3) trades, then your ratio must be more than 1:1.5 – otherwise you’re at 0 or losing money (e.g.: limit of 100, stop of 50 OR limit of 12, stop of 6, etc.)
If you feel you can be profitable on 20% (1 out of 5) trades, then your ratio must be more than 1:5 – otherwise you’re at 0 or losing money (e.g.: limit of 50, stop of 10 OR limit of 20, stop of 4, etc.)
You can play with these numbers, either modifying the percent of winning trades or the stop/limit distances. Obviously having a higher win percent or tighter stop is going to be better, but as you noted, tighter stops are going to get stopped out more frequently, reducing the win percentage 
What risk/reward ratio do you use/prefer? What win percent do you predict (or have you had in the past)?
Good luck with your trading!
Brad
Before playing with RR, you need a system and a one that works 
You have to realize, that money management is part of a GLOBAL system.
Before playing with RR, you need a system and a one that works
You have to realize, that money management is part of a GLOBAL system.yep you need a system that works. otherwise it makes no sense to play with rr. money management plays an important role in every success of a trading system. the key to successful money management is maximizing every winning trades and minimizing losses.
Hi Rambo, I think as you pointed out, 10 pips stop loss is very likely to get hit very often. If the trader is risking 10 pips to make 10 pips, then his 10 pips TP will be likely to get hit quite often as well. However, in my opinion, if aiming 100 pips by risking 10 pips, the 10 pips Stop Loss is way too tight for it since it takes some time to move 100 pips in our favor.
Yes, it is definitely true that using a 10 pips stop and 100 pip limit means that the stop is going to get hit more often simply because it’s so much closer to the entry price. However, if you look at a group of 100 trades with the same 10 pip stop, 100 pip limit, if you only hit the limit on 10 of the trades, you make 1,000 pips, and hitting the stop on 90 trades costs you 900 pips, so you are winning 100 pips more than losing, even though you lost on 90% of your trades. I think that looking not at each individual trade, but a series of trades over time, and determining what win percentage is needed can help most any trading strategy!
Hope this helps, best of luck trading to everyone!
Brad
My opinion is that having a fix target is absolutely the wrong way to go. Your targets have to be adaptive to market conditions and the same goes for your stop loss. I am also a firm believer in scaling out positions. I usually use three targets. Some people would suggest leaving the third position open in case the market runs but I prefer to book the whole trade on a touch of the third target.
Here is a hypothetical example. I have six points and a median line based on todays open. The cloud is telling me to stay short so I am only considering downside targets. Stops would obviously be above the top side T1, the cloud and the horizontal line were the previous pivot low is. The chart is determining all the levels not some fix stop fixed target.
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Setting Stop Loss to tight
I know everyone has a different approach, strategy and preference when it comes to stop loss orders. I have come across several forum posts or blog posts where traders set a stop loss order less than 10 pips away from their entry. I know scalpers keep them tight.
I am just assuming that placing it at 10 pips or less often leads to a trade being stopped out way to pre-mature, but again that is my opinion. It also appears that you are more down the gambling path with a stop loss which is too tight. On the other hand I guess if you get stopped out too early in 90 trades out of 100 and used 10 pips you have lost 900 pips and if your 10 profitable trades earn 100 pips you are profitable in your account (assuming you trade the same lot size), but then you are not a scalper.
I know it is possible from a mathematical point of view and those who can risk 10 pips to make over 100 on a consistent base, not bad and keep it up. I do think that unfortunately there are more traders who risk 100 pips to earn 10 pips.