How Much Stop Loss Are Appropriate?

[Pharaoh]

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

A 2:1 ratio with a 50% success rate is what everyone always uses as an example. Unfortunately, there aren't any systems out there that can reliably produce this level of success in the long run. If there were, anyone using such a system while containing risk to avoid getting wiped out during a bad streak would inevitably become rich.

Personally, I'd be happy with a 1:0.9 ratio and a 54% success rate if it could be maintained.

 

[masonlee]

What would have happened on your last 20 trades if that TP had been 7 pips instead of 6?

This look like a good idea, i will try it out and see how good the result.

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

Thanks for the formula.
I think this is very useful for us to analyze and compare different strategies.

 

[Marmot]

I usually start with 50 pips. And when my trade is in profit switch to the trailing sl at 20 pips distance.

 

[masonlee]

I usually start with 50 pips. And when my trade is in profit switch to the trailing sl at 20 pips distance.

Are you start to trail the SL when the profit reach certain target, let say 20 pips? Or you start to trail the SL immediately once you see the profit turn positive?

 

[willforex]

I usually start with 50 pips. And when my trade is in profit switch to the trailing sl at 20 pips distance.

Then you may have a big account. What is your TP ?

 

[saharoy]

Maximum 5% not more than

 

[islam2244]

SL always b put on the base of resistance and support it wil b appropriate.

 

[dianajs]

SL always b put on the base of resistance and support it wil b appropriate.

That is my approach as well. I place stop losses above the most significant near resistance level and below the most significant near support level while taking into consideration the previous highs and lows the pair I am trading has formed.

 

[ForexVerified]

That is my approach as well. I place stop losses above the most significant near resistance level and below the most significant near support level while taking into consideration the previous highs and lows the pair I am trading has formed.

That is how almost every trader put their SL/TPs at and that is what the dealers know and almost every time they go for the largest congestion zone of orders (they care about trading volume, not if you make or lose money). And that is why most SLs are triggered. Usually the SL should be way beyond such zones, but unfortunately, if you are wrong and the price moves against your position then your loss will be bigger. If you're right then your SL won't be triggered and you might get some decent profit.

 

[justin123]

30 to 50 pips stop are appropriate if u have small account.