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How Much Stop Loss Are Appropriate?

Discussion in 'General Forex Talk' started by masonlee, Nov 5, 2013.

  1. masonlee

    masonlee Recruit

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    Hello everybody,

    Anybody can point me to the right direction on how to set my stop loss appropriately?

    Quite many of the time when i place a larger stop loss, the price hit my large stop loss and end up heavy losses.

    But when i place a small stop loss, the price seem like tend to hitting the stop loss line very frequently and i have to repeatedly place multiple orders with the same small amount of stop loss and toward the same trend for a currency pair. With small stop loss, even i catch the right trend for a certain pair and earn significant amount of pips but overall i still having negative profit because i have lost quite many pips from many small stop loss trades during the starting of the trend.

    Can you give me some guideline on how to set a appropriate stop loss?

    Thanks in advance.
     
  2. GOR FX

    GOR FX Sergeant

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    Think in terms of risk and exposure.
    2% max risk per trade, and 7% max exposure....
    make sure that your trades adhere to such a criteria and your will be able to set your SL quite easily
     
  3. Pharaoh

    Pharaoh Colonel

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    That's only part of the formula.

    If 2% risk at the desired trade volume leaves you with a 3 pip SL, you need to reduce the trade volume so that the SL can be widened. The issue with the original question still wouldn't be covered, since masonlee is having trouble with his SL being hit.


    The best place for your initial SL is to put it a reasonable distance past some support or resistance that should (in theory) help to keep price from smacking straight into it.

    As GOR FX said, this still needs to minimize your risk on the trade, since even the strongest S/R level won't help you if the market decides to do something wildly unpredictable (which it often does).

    Another factor to take into account is the planned duration of your trade. If you are trading a 5 minute chart and are really only looking to catch a small move, then to keep a good risk/reward ratio, you need to keep your stops tight. If you are looking at a weekly chart and your planned TP could take a few weeks to be hit, then the SL needs to be wider to accommodate the spikes that can come from news events.

    You may want to spend some time looking around in Forex Military School. Sive talks about SL quite a bit in it.
     
  4. Rambo35

    Rambo35 Corporal

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    When it comes to that everyone is different. As you read above it is a combination of % you feel appropriate with and volume. Most new traders are underfunded in the wrong account and have a static SL with high volume and get stopped out of way too many trades because of that.

    Pick the right account, have sufficient funds to trade and use the correct volume so you can execute your strategy. Personally I use a stop loss to close my trades for profits, but that is another story.
     
  5. masonlee

    masonlee Recruit

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    May i know what is exposure?

    Now i understand why people always keep changing their volume. I found that there are quite many support and resistance that allow me to place my SL, may i know how can i choose the strongest SR line? What is strongest support and resistance?

    So, for an acount with 1000USD, is it convenient to trade with a lot size of 1.0? Will it be too large?
     
  6. Pharaoh

    Pharaoh Colonel

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    Optimally, you want some sort of support or resistance that's confirmed by at least 2 separate methods. For example, if you are planning to go long long and there was a recent double-bottom, that could be support. If this correlates to a weekly pivot resistance level, now you've got 2 reasons to think that the support may hold. Of course, set the SL a reasonable distance below the support, since support levels are often tested.

    Let's make this easy. If you plan to risk 2% of your account balance per trade, then a $1000 account means you should risk only $20. If you are trading xxxUSD pairs, 1 pip on 1 full lot = $10. That gives you only 2 pips for dealing with the spread and your SL.

    Read this for more info on picking your lot size to be appropriate to your SL:

    http://www.forexpeacearmy.com/forex...2272-how-manage-risk-while-forex-trading.html
     
  7. bigdolly

    bigdolly Master Sergeant

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    I think SL is entirely depends on two factors - timeframe you trade in and size of deposit. The more is time frame and deposit the more is tolerable losses. (of course they can't run over of the edge of your trade strategy). It's common knowledge that acceptable SL percent is 2% as well
     
  8. masonlee

    masonlee Recruit

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    Thanks for sharing your good article. I think start from now i will focus more on surviving rather than making big profit.
    Seem like lot size of 1.0 is too large for my account.

    Talking about timeframe, if i trade in 30 minutes chart and regardless of the amount of money the SL worth, how many minimum pips of SL is convenient?
     
  9. Red Herring

    Red Herring Corporal

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    Same problem I used to have at the beginning!
    Then I started to follow fundamentals (with Price action) and how long this may work. I place my trades without SL when I am sure that next trend is this...etc.You must guess the trend and enter in a suitable position such as pull retracement levels. This is a key I think.
     
  10. Pharaoh

    Pharaoh Colonel

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    Depending on how long you plan to hold the trade and what your profit target is, I'd think somewhere in the 15-35 pip range would be reasonable. If you are trading a less volatile pair under calm market conditions, you could go lower. If you are trading a very volatile pair during active conditions, you might need to go a little higher.
     

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