Small or large stop loss orders?

[pere490]

I wanted to get different opinions on using large versus small stop loss orders to trade FOREX. I read one strategy that uses tight stop losses to minimize losses and I remember reading a second strategy using very large stop losses to prevent being whipsawed on volatility. What I remember is that the large stop loss strategy would yield many more small gains (ie. 30 to 40 pips) that would offset the few large stop losses (ie. 100 pips).

Example: I entered an order to short USD/JPY last night at 116.80 with stop loss at 117.10. My stop loss was later triggered and the pair went to 117.19 to then reverse to a low today of 116.30. This seems to happen to me all the time. If I had used a much larger stop loss I could gained atleast 40 or 50 pips.

Just wanted to know if anybody uses large stop losses succesfully.

Thanks.

 

[mortysill]

Quote from pere490:

Example: I entered an order to short USD/JPY last night at 116.80 with stop loss at 117.10. My stop loss was later triggered and the pair went to 117.19 to then reverse to a low today of 116.30. This seems to happen to me all the time. If I had used a much larger stop loss I could gained atleast 40 or 50 pips.

Just wanted to know if anybody uses large stop losses succesfully.

Thanks. [/B]

My stops vary depending on the volatility of the pairs traded. Generally they vary between 50 and 100. You could try

1. to get your entry closer to the extreme of the day and be prepared to have a number of orders that don't trigger.

or

2. have a looser stop perhaps based on ATR(10). A loose stop needs a bigger profit target to maintain the risk:reward ratio and a smaller lot size to stop the equity at risk increasing.

It's a balancing act.

Regards
Morty Sill

 

[jsmooth]

There is more too it than just stop length (like your survey asks about)....There are a lot of other variables your forgeting about (or not taking into account) (1) self disipline (2) money management (3) entry/exit parameters (4) Position sizing....


Obvisously you want the tightest stop as possible, but in order to do that you need better entry signals. You also then need to have the disicpline to follow your trading rules and honor your stops <B>and price targets</B> (if you trade with tight stops, you need that much more disicpline to be willing to stop yourself out of 5 losers in a row, but still able to hold the 6th winning trade <B>and manage that winning position</B>. Managing a position - moving stops, adding size, ect....

Your position sizing should also depend on the risk your taking, how good the setup is, ect. If you find a "weaker" setup, you may still want to take it, but have a wider stop plus smaller position size. On the other hand, you might find a "high probability" trade (with a tighter stop), so you would then want to increase your size.

You also have to take TIME into account. If you get into a trade and it hasnt really done anything since getting in (X amount of time has passed and the position hasnt moved one way or the other)....regardless of where your stop is, just get out.