Stop Losses- how do you use them - and why do prices Spike ?

[johnthreadgold]

Hi Guys,

OK I am hoping that the title will get some discussion going.

I have a live account, and also a Demo account. I have compared the two in terms of information stream and the differences are small, due to being with different brokers. The Demo account is definitely not 'fixed' to make me bigger profits.

I want to share a couple of experiences that I had, that make me raise the question of the Stop Loss.

I entered into a trade on my Demo account. I was just about to do an 'associated order', which would have set up a take profit and a Stop Loss, when the price spiked by 20 pips. That could have clearly wiped out any stop loss that would have entered. As it happened the price fell almost as quickly, is it had rose. Had I already put an associated order in I would have lost out immediately. Now I had my Live account open at the same time. The price spike showed on both accounts, which are from two different brokers.

The trade did not go as planned, and I scrapped a small 0.5 pips from it.

Questions that I would love sometime to answer is this. 1 ) Who manages to 'spike' prices like this ? 2) Who gains from these spikes that wip out stop losses ?


OK here is my second example. I put on two identical trades. One was on my demo account and the other was on my live account. Now I forgot to put a Stop Loss on to the Demo. However I did put a 13 Pip stop loss onto the Live account. I had to do some work, so I let both trades run

WHen I came back an hour latter, my Live account had been stopped out. My DEMO account however, where I had not put a stop loss on, was showing a very respectable 17 Pip profit.

In both the above examples the Stop Loss resulted in Losses, while the Lack of a stop loss, resulted in Profits.

Now I am not stupid enough learn the wrong lesson that I should not do a Stop Loss. The trade that profited ( on my Demo) could have theoretically moved by a 100 pips or more and wiped out my account, or a large part of it.

However assuming that you are watching a trade, I would appreciate some answers to the following questions.

1) When you are monitoring a trade, do you always put a Manual Stop Loss on, to do you have a stop loss in your head, which you then implement ?

2) if you have a stop loss in your head, do you follow it through or do you fudge it in the hope that the trade will reverse ?

Clearly the advantages of a stop loss in your head, are that you can be flexible and do not get caught out by spikes. However what happens if the price moves against you very rapidly and it turns out not to be a spike ?

3) If you set a Manual Stop Loss, what effect does this have on your trades ? Could it be that you would do better with a stop Loss in your head, because 99% of the times, the price action does not move up so quickly that you can not terminate the trade ?

4) ALso I have been told that if prices are moving so fast anyway, the stop loss might be breached anyway ?

5) Has anyone experimented with just letting a trade ride ( for days if required) on the basis of what goes up must come down ( and vice versa),and it will come good in the end ? If yes what were the results ?

I am a New guy here, and I hope that these are questions that some of the more experienced people here can answer.

Take care and look forward to hearing from you .

John T

 

[dkami]

I don't read to much into who move's the market but from what I understand is retail trader's have very little influencing on price but is more the big hedge fund's and bank's!

Spike's usually happen on new's releases when these hedge fund's and bank's enter or exit the market!

From what I gather from your post you are trading off lower time frames (H1 and lower) now these lower time frames are more for experienced traders as the higher the time frame the more reliable the trend and less noise you will experience!

Now the SL should be placed above a high,below a low or above a resistance, below a support but whether you put a SL on or just have one in your head and execute it manually only you can answer as you will have to take into consideration the leverage you use!

Here is an example of a trade I took last month that went against me, now I don't use a SL and use very little if no leverage and trade off higher time frames so this must be taken into consideration if using this method!

In the pic you will see basically a lower low on D1 then I entered short on the pullback just below the last high but price kept going and would have taken out my SL if I had one on but instead I waited for the retrace and got out with a few pips (I got out just after taking the screen shot)

 

[ilearn2t]

Hello johnthreadgold

You could always put a StopLoss on your orders before execution, and if not a quick as possible soon after opening order is executed, to avoid high volatility that might place your order at a large lose, some newbies might mistake this as a large spike. Placing a TakeProfit can be placed thereafter.

I hope my scenario below might help answer more of your questions:

Assume you're using a $100, 4 digit, each pip = 1 cent per 0.1 lot size.
Most experience traders recommend never to risk more than 2% per trade.

So your first trade must involve a losing StopLoss of $2 = 200 pips.
Your (losing) risk first trade is 2:1 breakeven, so your TakeProfit will be 400 pips = 2 (S/L) to 1 (T/P) trades breakeven.

Before you even think about opening a "Real" account, a few things that might help:

1) Get yourself a good "money management" strategy.

2) Don’t try to trade on a large amount of currency pairs.

3) Never invest more than you can afford to lose.

I'm sure one or two better qualified trades will be a long soon, so take care and digest everything that they post in your quest of knowledge in this business, because the fun part is "you never stop learning"

Good luck
ilearn2t

 

[Pharaoh]

Some platforms don't allow stops to be entered as part of orders. Personally, I wouldn't use a platform or account that acted this way. Most news events are scheduled, but when a central bank does a surprise intervention, price can move a hundred pips or more very quickly.

 

[GOR FX]

Like it or not you will have to place a stop loss with each order. No mental stop losses please!

A simple way,

Determine: whatever amount is 2% of your capital, how many pips to the last resistance or support region.
From these two compute the lot size that would give you the desired risk amount, should you loose a certain x amount of pips.
Whatever happens, don't forget to place a SL on your live trades or risk more than 2% per trade

 

[LoRio]

1) When you are monitoring a trade, do you always put a Manual Stop Loss on, to do you have a stop loss in your head, which you then implement ?
>Hard Never changed Stop Loss and Take Profit.Just like dkami suggested.
Place your stops on the inside.Heres why:
-There are 2 things that can go wrong :
a.You predict correctly but the market reverses before reaching support or resistance.
So Place Take Profit Bellow Resistance For Buy orders,and Above Support for Sell orders.
b.You predict incorectly at first but the market reverses at support or resistance.
So Place Stop Loss Above Resistance for Sell Orders ,and Bellow Support for Buy orders.
c.(optional) Trailing Stop , is a double edged knife , it could reduce your losses but at the same time shrink your profits.On an uptrend and a buy trail far.On an uptrend and a sell dont trail.
On a downtrend and a sell trail far.On a downtrend and a buy dont trail.
As price approaches support or resistance trail closer.

2) if you have a stop loss in your head, do you follow it through or do you fudge it in the hope that the trade will reverse ?
>I always fudged it so i stopped mental stops*.But i started having extreme accounts with small deposits where i "let it all out".No sl no tp full risk.Its fun after a while.


3) If you set a Manual Stop Loss, what effect does this have on your trades ? Could it be that you would do better with a stop Loss in your head, because 99% of the times, the price action does not move up so quickly that you can not terminate the trade ?
>Let me propose this : Technical analysis and pending orders might free you of stress.
ex: uptrend , resistance at 1.40 first support at 1.3960 , pending order Buy Limit 1.3960.
(it may backfire if price goes up to 1.3962 and back down to 1.3960 )

4) ALso I have been told that if prices are moving so fast anyway, the stop loss might be breached anyway ?
>*If i want to scalp news , and i know my entry points , and the entry criteria ,(and price is moving fast) then i use no stops.

5) Has anyone experimented with just letting a trade ride ( for days if required) on the basis of what goes up must come down ( and vice versa),and it will come good in the end ? If yes what were the results ?
>There was a power outage (\m/ Greece \m/) and i was long dollar yen without stops .The next day i cashed 120pips.It was luck.Luck is not a skill.

 

[Pharaoh]

Moving your SL is fine, but ONLY if you move it in your favor. Never ever extend a SL since you "know" the market will reverse.

Extending TP can be done - but in general should be accompanied by a partial close at the original TP and moving the SL to breakeven or better.

 

[johnthreadgold]

Thanks Guys for you advice. Much appreciated. Take care and happy pip hunting. Toddle pip ! john T

 

[fxstrategist]

I determine my stop loss levels depending on the volatility of the market and the swing highs and lows that the instrument has done. If I go short, I will place my stop loss above the most recent high, regardless of the time frame. If I go long I will put my stop loss below the most recent low.

 

[csc2009]

Good answers here, answer some of my questions too.