I asked primarily because it seemed reasonable to have a 3pt stop if your MAE was only up to 2.5. However, there must also be a definition of "winning". I assume that with a 6pt stop you're trading trends rather than scalping. If that's true, then you're hoisted on the same pitard as everyone else who's trying to come up with the "best" stop. If the trade is a "winning" one, you're in the clear. If not, you're out $120 per contract.
My own experience - purely empirical - has been that the NQ can bounce as much as 8pts and still be a winning trade. But letting it go that far just isn't in the cards for many people.
One difficulty lies in the fact that, as you say, so much depends on conditions. If conditions are right, a stop is irrelevant since even a one-tick stop would never be hit. And if conditions are terrible, you may as well get out almost immediately, assuming that you enter the trade at all.
It's all those trades in the middle.
Given a particular definition of "winner", have you done a statistical analysis to determine how often stops of n, n+1, n+2 and so on are hit so that probabilities of a sort could be assigned to each stop level? In other words, if it is extremely unlikely that a winner will reverse for more than 2.5pts, perhaps it is better to exit the trade rather than "hope" that this particular trade will stop its reversal and resume its move. On the other hand, if "winners", however they're defined, routinely back up 3.5 to 4pts, then a 4.5 to 5pt stop seems to be in order. It just depends on how many times each of those levels is reached before the move is resumed.
--Db
My own experience - purely empirical - has been that the NQ can bounce as much as 8pts and still be a winning trade. But letting it go that far just isn't in the cards for many people.
One difficulty lies in the fact that, as you say, so much depends on conditions. If conditions are right, a stop is irrelevant since even a one-tick stop would never be hit. And if conditions are terrible, you may as well get out almost immediately, assuming that you enter the trade at all.
It's all those trades in the middle.
Given a particular definition of "winner", have you done a statistical analysis to determine how often stops of n, n+1, n+2 and so on are hit so that probabilities of a sort could be assigned to each stop level? In other words, if it is extremely unlikely that a winner will reverse for more than 2.5pts, perhaps it is better to exit the trade rather than "hope" that this particular trade will stop its reversal and resume its move. On the other hand, if "winners", however they're defined, routinely back up 3.5 to 4pts, then a 4.5 to 5pt stop seems to be in order. It just depends on how many times each of those levels is reached before the move is resumed.
--Db
