What is the safest (but most profitable) way to set a stop loss? - page 3

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Frederic Metraux #:
Isn't the SL calculated from risk?

It can be, but that's useless for small accounts. 

If you choose 2% risk on a 1000 dollar account, that would be a stop loss of 20 pips. Good luck with that. the stop loss might be hit in 10 seconds

 
The safest way to set a stoploss in my humble opinion so:
The maximum amount of loss after 10 times hitting stoploss, shouldn't be more than 10% of your initial budget.
 
Conor Mcnamara #:

It can be, but that's useless for small accounts. 

If you choose 2% risk on a 1000 dollar account, that would be a stop loss of 20 pips. Good luck with that. the stop loss might be hit in 10 seconds

2% of 1000$ is 20$. 20 pips are 200 ticks.

At 1 standard lot, a tick is worth about 1$ on EURUSD (5 digit symbol). So the volume you can trade is 0.1 standard lot.

On a leverage of 30, you are facing a margin of 333.00$ on your account. 

This can be considered a saturated account, with a max volume open of about 0.15 standard lot.

SL and trading volume are directly correlated. As well as risk.

If you loose 50% of your account, you must make 100% gain to get back to break even.

Risk exposure and margin requirements need to be added up to know the load on your balance.
 
Dominik Egert #:
2% of 1000$ is 20$. 20 pips are 200 ticks.

At 1 standard lot, a tick is worth about 1$ on EURUSD (5 digit symbol). So the volume you can trade is 0.1 standard lot.

On a leverage of 30, you are facing a margin of 333.00$ on your account. 

This can be considered a saturated account, with a max volume open of about 0.15 standard lot.

SL and trading volume are directly correlated. As well as risk.

If you loose 50% of your account, you must make 100% gain to get back to break even.

Risk exposure and margin requirements need to be added up to know the load on your balance.
Yes valid points. I think of using one lot or 0.5 minimum, because otherwise we are not making much profit. But indeed you would need a bigger margin to trade this position size on a lower leveraged account
 
Conor Mcnamara #:
Yes valid points. I think of using one lot or 0.5 minimum, because otherwise we are not making much profit. But indeed you would need a bigger margin to trade this position size on a lower leveraged account
Actually no. You should constraint your money management to percentage only.

If you keep thinking in dollars, you will always be exposed to a number that is non-stationary. But if you stick with percentage values, no matter the account size, you always know your outcome.

If your trading strategy has a 1:1.5 ratio and a win rate of 50%, you take 10 trades per day on average, you can easily calculate the outcome.

With a risk of 0.1% you'd be up every day by 0.5%

If you do that for 20 days, you will have a minimum gain of 10%, without taking into account the compounding effect.

At this low risk, you can probably open 10 positions simultaneously on a1000$ account.

To me this seems very reasonable.

And later, when your account has grown, you are not scared of the bigger numbers of your account, because you only think in percentage.

This way, you will keep your emotions in check as well.

Now imagine you up your risk from 0.1% to 0.25% - it will begin to influence your trading, because your account always needs to cover the margin as well.
 
Dominik Egert #:
Actually no. You should constraint your money management to percentage only.

If you keep thinking in dollars, you will always be exposed to a number that is non-stationary. But if you stick with percentage values, no matter the account size, you always know your outcome.

If your trading strategy has a 1:1.5 ratio and a win rate of 50%, you take 10 trades per day on average, you can easily calculate the outcome.

With a risk of 0.1% you'd be up every day by 0.5%

If you do that for 20 days, you will have a minimum gain of 10%, without taking into account the compounding effect.

At this low risk, you can probably open 10 positions simultaneously on a1000$ account.

To me this seems very reasonable.

And later, when your account has grown, you are not scared of the bigger numbers of your account, because you only think in percentage.

This way, you will keep your emotions in check as well.

Now imagine you up your risk from 0.1% to 0.25% - it will begin to influence your trading, because your account always needs to cover the margin as well.

I like the concept of taking precise risk, that's interesting, but I wonder if this could be achieved in automation? It seems like something a skilled trader would manage manually. So far I found it very difficult to get an EA to manage risk with precision. There are all kinds of things that the EA will struggle on to prevent a tight stop from being hit - imperfect entry (too soon or too late), sudden market volatility it doesn't expect, and then institutional tactics like stop hunting and liquidity grabs

 
Conor Mcnamara #:

I like the concept of taking precise risk, that's interesting, but I wonder if this could be achieved in automation? It seems like something a skilled trader would manage manually. So far I found it very difficult to get an EA to manage risk with precision. There are all kinds of things that the EA will struggle on to prevent a tight stop from being hit - imperfect entry (too soon or too late), sudden market volatility it doesn't expect, and then institutional tactics like stop hunting and liquidity grabs

Yeah, but a tight stop is achieved by your analysis, not by the EA.

An EA can calculate what is required to achieve precise volume and manage your account balance in a very short time, but the entry definition must be given by your strategy.
 
Depending on the analysis done, it might be necessary to have a "virtual" stop loss.

In my case, because the analysis is done on chart and price movement, and since charts only show bid price, I am required to trace my stop based on the bid line, and the ask line will trigger my stop to early.

What I do is, I set a broker side stop that's my stop + 2 times the spread as security. I consider the spread as an upfront payment, and track the stop based on the bid line inside my EA.

This also gives me the opportunity to do overnight holdings, because I can adjust the broker side stop accordingly.

 
the 'safest' way IMO to place a stop loss, is to only make winning trades; but if you were going to do that, then you wouldn't need an SL in the firstplace, right?

SL's are for when trades go against what you would predict; the best advice I can muster sounds something like "set your stop loss so that if a trade goes against you, at what point does your trading idea become 'invalid'?

For me, that's often around the ____________ actually it depends so drastically on your trading strat that I can't give you any feedback as what works for me might be completely invalid for you.
 
Evren Caglar #:

Lets leave the traditional retail nonsense taught of where the SL should go. It is totally rubbish idea.

It is 99% of time, when retail traders locate a stop loss, it is where the institutions or the smart money gather liquidity from the market price and reverse the price.
You always need to consider the liquidity zones in the chart and consider how big block orders can be placed into the market without moving the price. The thing is you shouldn't be trapped and hunted  by your SL.

Then you need to consider some form of price action to understand if the price is "ready" to move to your SL or the smart money is gathering the liquidity from the marketplace in the location where you are going to place your SL....

 

That is also important because I have observed most times when one chooses a sl using support and resistance zone market sometimes get there and reverses after hitting the sl. So, which ever way you want to use to choose your sl ensure you consider how much you are risking when that sl is reached
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