How is everyone calculating stop loss? Is it account based or chart based? Some people use percentage of account for each decision. Some use a chart point to signify a failure for the basis of the trade. Or a combination of both.
Stop Loss
- Thread starter bladerunner2049
- Start date
Stop loss, just like trading, is an art and science. -- there is no clear cut answer.
You can have a stop loss, only for the chart to reverse into much profit -- and Vice Versa.
Of course you'll only truly know in hindsight
Everyone has losses of varying sizes, and everyone has profits of varying sizes....it all depends on your risk appetite and convictions.
You can have a stop loss, only for the chart to reverse into much profit -- and Vice Versa.
Of course you'll only truly know in hindsight
Everyone has losses of varying sizes, and everyone has profits of varying sizes....it all depends on your risk appetite and convictions.
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That relates to position-sizing, after deciding where the stop loss should go. It makes little sense to allow your own means/risk-parameters to determine the level at which you no longer wish to be in a trade which has turned against you.
I put my initial stop loss at the level which would tell me entry wasn't valid on that occasion (as of course they're sometimes not): the level at which I no longer want to be in the trade if the price reaches it, because my trade entry is no longer a valid one under my own trading parameters. Then after seeing how far that is from my entry-point, I work out the position-sizing accordingly, so that I'm never exceeding the proportion of risk I take with that method on any individual trade.
https://www.marketvolume.com/technicalanalysis/chandelierexit.asp
Chandlier Exit
Formula and Calculations
Chandelier Exit consist of two lines: Chandelier Exit Long and Chandelier Exit Short.
For both Exit lines you need to calculate ATR (Average True Range) - see ATR calculations HERE. Then you have to find the highest high (HH) and lowest low (LL) for the same period that was used to calculate ATR. In the last step you subtract multiple ATR from highest high and add multiple ATR to the lowest low. The formula would be:
Chandelier Exit Long = n-bar Highest High - Multiplier x ATR(n)
Chandelier Exit Short = n-bar Lowest Low + Multiplier x ATR(n)
Chandlier Exit
Formula and Calculations
Chandelier Exit consist of two lines: Chandelier Exit Long and Chandelier Exit Short.
For both Exit lines you need to calculate ATR (Average True Range) - see ATR calculations HERE. Then you have to find the highest high (HH) and lowest low (LL) for the same period that was used to calculate ATR. In the last step you subtract multiple ATR from highest high and add multiple ATR to the lowest low. The formula would be:
Chandelier Exit Long = n-bar Highest High - Multiplier x ATR(n)
Chandelier Exit Short = n-bar Lowest Low + Multiplier x ATR(n)
MFE= Maximum Favorable Excursion is what was the maximum profit that the trade had before the trade closed, on line number 5 you see a trade that lost 2.5 points (P&L) but during the time the trade was open it was one time making 1 point profit, that was the Maximum Favorable Excursion for that trade.
MAE=Maximum Adverse Excursion is what was the maximum loss that the trade had before the trade closed, on line number 5 you see a trade that lost 2.5 points (P&L) but during the time the trade was open it was one time losing 5 points, that was the Maximum Adverse Excursion for that trade.
You check out winning trades and want to capture 90% of them and find out the MAE of winning trades is how I do it.
MAE=Maximum Adverse Excursion is what was the maximum loss that the trade had before the trade closed, on line number 5 you see a trade that lost 2.5 points (P&L) but during the time the trade was open it was one time losing 5 points, that was the Maximum Adverse Excursion for that trade.
You check out winning trades and want to capture 90% of them and find out the MAE of winning trades is how I do it.
Best stop loss is the one most suitable to your personality and account size thus position sizing is critical. Your position size should allow you to sleep at night regardless of the market volatility. Here are 3 ways to set a stop loss 1) Objectively IE I don't want to lose more than X amount, 2) technically IE around support & resistance etc., 3) Volatility based eg 2 or 3 times prevailing ATR. Hope this helps and best of luck!
ps Linda Bradford Raschkee recommends 3 times ATR
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https://www.marketvolume.com/technicalanalysis/atr.asp
ATR Formula and Calculations
The calculation of the ATR is simple and consists of two steps:
Step #1: Define the True Range (TR) - The True Range is defined as the highest of the following numbers:
- The difference between the current bar High and the current bar Low.
- The absolute value of the difference between the current bar High and the previous bar Close.
- The absolute value of the difference between the current bar Low and the previous bar Close.
ATR = SMA(TR)
ATR% Formula and Calculations
The process of calculation of the Absolute ATR is simple and could be split in three steps:
Step #1: Find the True Range (TR) - The True Range is defined as the highest of the following:
- The difference between High and Low for a given price bar.
- The absolute value of the difference between the current bar High and the previous bar Close.
- The absolute value of the difference between the current bar Low and the previous bar Close.
Step #2: Calculate Absolute True Range by dividing TR by previous bar close price
TR% = TR / Previous Close x 100%
Step #2: Apply a simple moving average to the calculate Absolute ATR.
ATR% = SMA(TR%)
Once you identify the current trend, you can calculate the midpoint of high and low. Set the stop loss at midpoint. Alternatively, once you know the current trend, set the stop loss just above the long term MA.
Bollinger Bands would seem to be good for this.
