How Much Stop Loss Are Appropriate?

For me, I always set the small TP and 50% higher for the SL..
10pips of TP and 20pips for SL.
It's depend on the strategy that we will used and which pairs that will we used in trade..
I always adopt this strategy to trade in EUR/USD pairs in Liteforex broker..

The account that i've used is in PAMM one,,
Small deposit from $200
Low spread from 0,2pips
Leverage 1:200
swapfree
Market execution
Hedging,scalping,EA Allowed
can be managed by best traders

Recommended for all traders..
 
For me, I always set the small TP and 50% higher for the SL..
10pips of TP and 20pips for SL.
It's depend on the strategy that we will used and which pairs that will we used in trade..
I always adopt this strategy to trade in EUR/USD pairs in Liteforex broker..

The account that i've used is in PAMM one,,
Small deposit from $200
Low spread from 0,2pips
Leverage 1:200
swapfree
Market execution
Hedging,scalping,EA Allowed
can be managed by best traders

Recommended for all traders..
This will lead to inverse risk to reward ratio, i heard many traders said that they do not recommend this kind of strategy.
May i ask how much profit that you generated by using this strategy?
Any reasons that lead you to used this strategy?
 
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.

It's great that you're learning about the importance of trade size early on in your trading! :cool:

As has been mentioned previously, a good rule of thumb when it comes to risk management is never to risk more than 2% of your account on a single trade. If my equity is $1000, that would mean I would not want to risk more than $20 per trade. On a 10k USD/JPY trade I would be risking about $1 per pip. That means I could risk only 20 pips on a trade that size. For shorter term traders that might be fine, but personally, I prefer placing longer term trades that last anywhere from a few days to a few weeks. On these trades, I risk 50 to 200 pips per trade with the goal of making about 100 to 1000 pips. Since I only want to risk $20 per trade with $1000 of equity, if my trade idea requires me to risk 50 pips, that equates to risking 40 cents per pip ($20 / 50 pips). That means I need to be trading 4k USD/JPY instead of 10k. If I want to risk 200 pips, then that equates to 10 cents per pip ($20 / 200 pips). To risk that amount, I need to reduce my trade size to 1k USD/JPY.
 
This will lead to inverse risk to reward ratio, i heard many traders said that they do not recommend this kind of strategy.
May i ask how much profit that you generated by using this strategy?
Any reasons that lead you to used this strategy?

A common strategy is to average more money on a winning trade than a losing one and to average more than 50% wins. If you can do this, it's hard not to make profits.

On the other hand, what if you lost $2 on bad trades, made $1 on winning trades, and had a win:lose ration of 3:1? This would also be profitable, since you would average $3 in gains for every $2 in losses. Of course, you don't want to take this to the extreme. If you risk $1000 for every $1 you make and win more than 999 times out of 1000, you'll be hurt badly if you get unlucky and have 2 losses close together.
 
For me, I always set the small TP and 50% higher for the SL..
10pips of TP and 20pips for SL.
It's depend on the strategy that we will used and which pairs that will we used in trade..
I always adopt this strategy to trade in EUR/USD pairs in Liteforex broker..

The account that i've used is in PAMM one,,
Small deposit from $200
Low spread from 0,2pips
Leverage 1:200
swapfree
Market execution
Hedging,scalping,EA Allowed
can be managed by best traders

Recommended for all traders..



Seems good...i will try it. have you tried it with other pairs.....
 
Thanks for the explanations everybody.

I have spend some time to try trading with SL larger than TP as suggested by nanypurwanti, with 14 pips SL against 6 pips TP traded on 30 minutes time frame (EURUSD & GBPUSD).

So far, the winning percentage is around 73% while losing percentage is around 27%.
Currently still having slightly negative profit.

The 73% winning rate seem quite attractive, any suggestions to improve the result?
 
Hi Mason

I think that I would start by asking some different questions:

1. What is your likely % of winning trades?

If you know this you can work out your stop loss after answering the second question.

2. What % risk per trade can you take?

I think you can only know this after answering question1. If you have a 50% chance of winning a trade (and 50% of losing a trade) then if you risk 10% of your capital on one trade then it will be clear that after 10 trades you will be bust. You will of course be bust before then as you will reach a point before 10 losses when you will be unable to trade because you do not have enough margin.

You need to consider the maximum number of losing trades you may experience in your trades, for instance at 50% win ratio, over 2400 trades which is 10 years at 20 a month it is mathematically probable that you will encounter 12 consecutive losses, so 10% per trade over the lifetime of your trading will more than likely mean you going bust at some point.

You could also consider this from another point of view, the probability of just one run of consecutive losing trades which can also be calculated. The probability of a losing run of 10 trades is <1%, but that could still be quite high for being bust perhaps it depends on your risk profile. We hum as have a tendency to underestimate our downside.

You could also consider at what point in "drawdown" which is the % loss of your starting capital you would expect to start feeling pain, panic and this may affect your standards of trading. If for instance you can go to -50% without being a wreck than you could afford just 5 losing trades at 10% of risk per trade. Most people assume they can cope with more pain than they really can, so you may want to choose a figure for your pain threshold and then half it. Think about the point at which you could no longer place a trade as if nothing had happened before. Thats why the larger account side you have the smaller % risk you may be able to endure, so this figure may not be constant over your trading.

Thats why you will have seen 2% per trade as a risk amount as you can see that you can have plenty of losing trades and still be in the game. At 2% for instance you can have 43 trades in a row as a loss and still have enough margin for 1 more trade, but only one so 44 trades an you are bust. At a 50% win rate the probability of 43 consecutive losses is very small.

3. Calculate your trade size per pip of stop loss

Now you know your % risk per trade you can calculate your the size of the trade you can do for the stop loss on the trade you want to enter

As an added extra you probably want to also think about your average reward per trade in terms of the stop loss, if you have a reward of 2R on successful trades and have 50% win ratio then mathematically you would expect to make money over a series of trades; its another topic all together but important to think about early on I believe.

I hope thats a help to you.

Phil
 
What would have happened on your last 20 trades if that TP had been 7 pips instead of 6?
 
With your current plan you could perhaps consider the Positive Expectancyof this method.

The PE is (Average Win*Probability of Win)-(Average Loss*Probability of Loss) and if above 1 you have a statistical advantage in winning.
So in this case you describe assuming every TP is 6 and has a probability if 0.73 and every SL is 14 with a probability of .27 then:
(6*.73)-(14*.27)=0.6

Compare this to a plan for a TP of 20 and a SL of 10 and 50% Chance of either a win or loss:
(20*.5)-(10*.5)=5

Now 5 is bigger than 0.6 by a long way, so which plan has the greater probability of long term consistent success?

The TP and SL above are not suggestions, but an example for your consideration.

I hope that helps

Phil
 
Back
Top