Stop loss questions

[patrick_fx]

Hello traders,

What would be a good method to determine a stop loss? I trade full NY time and half Euro time. I trade short term hoping to catch 20 – 50 pips for each position. I’ve read some articles about the risk reward ratio like 1:3, 1:2, etc. It never worked for me because if I target to gain 30 pips profit, my SL would be -15 pips (1:2). Fifteen pips SL is too narrow for many pairs (I trade the most major pairs except JPY related pairs). So I stop using SL. Things worked great for a few months, then one bad trade took away most of my profit. :-( It made me realize that I need to find an effective SL. Please help.



Thank you,
Patrick

[trendfollower]

Hi Patrick,

You are on to a hiding to nothing trading short term with conservative SL`S. Try trading longer terms with a more realistic stop loss. Consider trading with more than 1 currency pair at a time & trading mini lots which allow you less expensive stop losses. Not unusual to be in 3 trades at the same time,all trades being at various positions of profit/loss. Positive trades allow you to ride out profit taking/retracements on trades that are in a negative position & that requires a realistic stop loss. Nothing worse than getting taken out on a trade because your stop was too tight, only to turn & continue in your chosen direction after it has taken your money.

[ukt]

Patrick_fx:
Your post is just what the doc ordered. I've some simple methods I use see my ramble below BUT am always interested/willing to rethink/shape my methods in the unending quest for better understanding

I've been getting into candles of late and simply being driven by price action around various fib levels. (Vegas's Tunnel Method http://www.freewebs.com/mswilson/ and one of many forums http://www.forexfactory.com/)
[for me] This basically price action only sure keeps FX life simple [if poss!] But of course, any selection of formations/patterns are going to cause grief now 'n then and stops are [as you've found out] generally a good idea!

My take on stops [and my thinking/methods] are this:
1. having identified potential price reversal area and
2. having drawn the obligatory trend lines for current support and resistence and
3. Let/wait/be patient for price to confirm [or otherwise] my potential reversal area, I finally [assuming I get price confirmation + (the candles are still showing me messages of reversal) kinda subjective stuff this but practice as they say does help! ]
4. place trade
5. stop placed at most recent support/resistance low/high.
6. a stop placed as in 5. above, requires one to understand the money management/risk issues, since if using day session timeframes, that stop may well be for example 100 pips. However, given that some work, some do not work etc. What's the big deal here?

For sure anyone just placing a trade with a 100 pip stop, who also has not really done the required homework and does not have all the other stuff firmly in place like: plan/method/system, risk and money management, not forgetting a knowledge that [with the current setup] profit is possible...
Well then--- these types may just be the one's paying ME my profits

Here, the issue as I see it is to do the drill and not think. Simply because -- the TA has been done - the entry decision has been made... so doIT - pull the damn trigger!
[btw - this is with one's eyes wide open too, due to TA+experience+...+basic understanding that your 'system/method' and money/risk management works within accepted profit/loss boundaries for you]

Thinking may be cool - but in the end a trusted/understood plan must be followed to the letter and it don't take any brains to do that... (after all - one has already done the mental stuff else would not be in position to consider an entry)
imho, now it's simply understanding[and accepting] that everything that could be done has been done [given one's current capabilities] including making an entry decision

trendfollower:
Your comments are most enlightening. As they say... I like the cut of your jib

btw, would you be willing to be more specific regards:
1. timeframes
2. SL decision making: to include the where's 'n why's
3. Attitude towards using price,fib levels and the stories candles can tell...
4. Have you heard/seen/used the 4hr or daily Tunnel Method?

Trends RULE just the finding of 'em that gives ya the frights

[trendfollower]

Hi Patrick,
Refer to my previous correspondence by clicking on my profile. I trade off daily charts, looking for change of trends in any of 19 different currency pairs. a sread of 15 pips does not faze me. My indicators bollingers,starc,rsi & stochastics must meet my criteria before entering a trade. With 19 different currency pairs to choose from, I can afford to be fussy. I draw a support line on a daily chart with as many touch points as possible. If there are no touch points, I look for them on a 4 hr chart. Then I tighten my support line on the 30 min chart & then draw in my resistance line & wait for the candle to hit my support line. The next candle in my chosen direction is my confirmation to enter the trade in the direction of the trend. My trades are normally 2-10 days long & will be happy to retrace 150 pips & get taken out on my stop loss. My stop loss is dependent on my current profitability with the other trades & where significant highs/lows were previously. Very rarely get taken out on a stop until I tighten it when I think the trend is over. Its a different mindset,longer term trend multi currency pair trading. Dont use Fibos or fundementals. On average the best time to enter a trade is just before EST. European sessions are often profit taking sessions before New York opens. I dont enter a trade when there are major fundamental announcements. Wait for the dust to settle first then wait for the candle to hit the support line. Don`t need to be glued to the computer. Great system for golfers. Getting in to a trade is the easy part. Not being greedy & staying in too long is the hard part. My average profit is 200 -300 pips per trade over 5 days. The secret is spreading your risk amongst different trades running concurrently. Single currency trading is like betting your money on even numbers in roulette.

[TrendsFX]

Originally Posted by patrick_fx

Hello traders,

What would be a good method to determine a stop loss? I trade full NY time and half Euro time. I trade short term hoping to catch 20 – 50 pips for each position. I’ve read some articles about the risk reward ratio like 1:3, 1:2, etc. It never worked for me because if I target to gain 30 pips profit, my SL would be -15 pips (1:2). Fifteen pips SL is too narrow for many pairs (I trade the most major pairs except JPY related pairs). So I stop using SL. Things worked great for a few months, then one bad trade took away most of my profit. :-( It made me realize that I need to find an effective SL. Please help.



Thank you,
Patrick

Before me other fellow traders have explained the things in a very professional manners. So I just want to add one more tip to it;fficeffice" />>>

>>

For example, at time of writing this post, EUR/USD is at 1.2068/70 and I am planning to SELL it only for 30/50pips. Okay this is my desire... now see it logically;>>

>>

I want to sell EUR/USD @ 1.2068 for 50pips (1.2018) right now. Where would my stop loss be?>>

>>

First of all, market is low is 1.2033, it means 1.2025/30 KEY resistance has not been broken. If market closes at 1.2030/35 then there will be at least 70% chances for the EUR/USD to hit 1.2130 (or 1.2160) before it hits 1.2018.>>

>>

Regardless of how small profit I want from this trade, technical, logical and sensible stop loss would be around 1.2175. This will be 100pips away. For sake of 50pips in profit. Anything below 1.2175 will be a suicide attempt.>>

>>

It means, this is not a proper time and not a proper price to trade. >>

>>

RIGHT CHOICE: I should wait for at least day close. If it really happens to close at 1.2030 (almost), then I will LONG EUR/USD with stop loss @ 1.1980 (almost 15pips below resistance). That trade will have chances to give me 100pips or perhaps more.>>

>>

CONCLUSION: We need to wait for proper time and proper price to trade. If we will do so, our ‘stop losses hitting ratio’ will not be more than 25%.>>


*** Trade example is just an EXAMPLE to make things understandable, otherwise it's not a trade advice in any means.




TrendsFX

[Millowena]

Hi Folks!


Is there a way to get a look at attachments to previous posts?

Thanks!

Millowena

[TrendsFX]

Originally Posted by Millowena

Hi Folks!


Is there a way to get a look at attachments to previous posts?

Thanks!

Millowena

Wrong thread.. Anyway sorry I don't know they way to get a look at attachments to previous posts.

[patrick_fx]

TrendFollower, thanks for sharing your techniques. Last Saturday was the first time I’ve heard about of Vegas’s Tunnel Method. I’ve read half of it just to get some ideas. How long have you been using VTM? How was the results?

My money management is quite simply. My contract size is 5% of my total margin. I usually having more than one position opening at the same time. I make sure that I have enough margin to withstand draw down. I archive that by monitoring the Margin Percentage. Never let it go under 5.00

Here are the answers to your questions:
1. timeframes – I trade short term. The biggest profit I ever taken was 100 pips.
2. SL decision making – I barely use SL. Just read TrendsFX idea and thinking about applying it.
3. I never used fib (do you really think it works?), but would be interested in learning candle stick pattern. I usually trade when the pair is either overbought or oversold.
4. No. The only Tunnel Method I’ve seen was VTM that you mentioned. Honestly, how effective are they?

TrendsFX, thanks for sharing a great idea! I never thought of it that way. Your idea will absolutely turn the risk reward ratio to the traders favor.

Millowena, sorry I don’t know that either.