Stops

jonathan734 · May 27, 2009

To start off my question I will just say that I already searched and couldn't find my answer, if someone can point me to a thread that could help I would be glad to read it.

I just started trading forex about 2 weeks ago, and was wondering what most of you guys/gals use for stops? I tried 10 pips but I get stopped out quite a bit even if my calls are right. I am sure my timing is way off, but I usually have the direction right on a 5 min chart, then get stopped. So what do you guys aim for? Thanks for the time.

T-Bone Trader · May 27, 2009

2:1 risk: reward ratio

50 pips stop loss: 100 pips gain

50 pips should be enough to give you wiggle room -- if you are right -- and also should not kill you in a medium size position

It's all about knowing how to manage your buying power

I try to use only 40 times buying power -- less emotional when a trade moves against and I'm able to stay in a little bit longer

jonathan734 · May 27, 2009

I appreciate the insight. What kind of time frame do you usually trade on? I like to be in and out in 15 min or so, is that a losing battle? I only like to make 2-4 trades a day though. 50 pips seems like a lot of wiggle room and on my time frames I am not sure that I could get out 100pip gains. I will play around and see what I can do

cashmoney69 · May 27, 2009

Quote from jonathan734:

To start off my question I will just say that I already searched and couldn't find my answer, if someone can point me to a thread that could help I would be glad to read it.

I just started trading forex about 2 weeks ago, and was wondering what most of you guys/gals use for stops? I tried 10 pips but I get stopped out quite a bit even if my calls are right. I am sure my timing is way off, but I usually have the direction right on a 5 min chart, then get stopped. So what do you guys aim for? Thanks for the time.

your stop loss should be no more than 3% of your account. So say you have 5k in trading capital, then 150 is the max $ value you can risk on any trade.

Look at eur/usd on april 20th..we made a bottom. near 2896. the next day price broke previous candle's high (for me this is a long signal) I buy...my stop would be 2896, my entry, 3037.

Thats 144 pips from my entry to where i want my stop.. i take the 150 risk, and divide by the 144, and i get 1.06... this tells me i can take this trade on 1 lot with a 144 pip stop loss, and be well within the 3% risk limit

now look at may 17th on a 4hr for eur/usd. we bottomed at 3430, my entry would have been 3476. On this trade im risking much less pips...43 in this case, but still using the 3% rule, I can trade 3 lots instead of 1.

you need to think in terms of %, not a fixed pip or dollar value, so that way you'll be able to trade on any time frame.

cm69

superbull · May 28, 2009

Quote from jonathan734:

To start off my question I will just say that I already searched and couldn't find my answer, if someone can point me to a thread that could help I would be glad to read it.

I just started trading forex about 2 weeks ago, and was wondering what most of you guys/gals use for stops? I tried 10 pips but I get stopped out quite a bit even if my calls are right. I am sure my timing is way off, but I usually have the direction right on a 5 min chart, then get stopped. So what do you guys aim for? Thanks for the time.

My advice is to recognize support/resistence levels and place stops behind them. It's one of my trading condition. If I can't find such a level I don't enter the market.

bigmrfrank · May 28, 2009

Quote from superbull:

My advice is to recognize support/resistence levels and place stops behind them. It's one of my trading condition. If I can't find such a level I don't enter the market.

We have a winner.

jonathan734 · May 28, 2009

Quote from superbull:

My advice is to recognize support/resistence levels and place stops behind them. It's one of my trading condition. If I can't find such a level I don't enter the market.

I just started doing that last night. Seems to work ok, but haven't really put it to the test. I appreciate all the replies. So what kind of differences am I looking at between this practice account and a real account? I know the mental aspect will be much different. My practice account is with forex.com and is probably where I will open a real account. Once again thanks for all the replies.

cashmoney69 · May 28, 2009

Quote from superbull:

My advice is to recognize support/resistence levels and place stops behind them. It's one of my trading condition. If I can't find such a level I don't enter the market.

most people probably trade this way. Why enter the market if you didnt think price was done falling?

-------

note to OP. The only real difference is the mental aspect. Once real money is on the line, you think differently. Like I said, only risk 3% or less on your account and you'll be fine...too much risk and youll be a nervous wreck, and wont last long. Use this time while on demo to find a style of trading that best fits you, and then back test that style. When does it work, and when does it NOT work. for example a trader that trades moving averages should know in choppy markets, that their system will NOT work, but in trending markets, they work great.

If I were you, id take screen shots of all my trades, and after each month, study them, what setups did you take, and why did they work, or not.

like others have said before trading is 80 to 90% mental, and 10 to 20% mechanical, meaning that, your success is not so much the system that you trade, but how you trade it.

An organized, and disiplined trader is a successfull trader.

cm

JamesL · May 28, 2009

Quote from cashmoney69:

your stop loss should be no more than 3% of your account. So say you have 5k in trading capital, then 150 is the max $ value you can risk on any trade.

Look at eur/usd on april 20th..we made a bottom. near 2896. the next day price broke previous candle's high (for me this is a long signal) I buy...my stop would be 2896, my entry, 3037.

Thats 144 pips from my entry to where i want my stop.. i take the 150 risk, and divide by the 144, and i get 1.06... this tells me i can take this trade on 1 lot with a 144 pip stop loss, and be well within the 3% risk limit

now look at may 17th on a 4hr for eur/usd. we bottomed at 3430, my entry would have been 3476. On this trade im risking much less pips...43 in this case, but still using the 3% rule, I can trade 3 lots instead of 1.

you need to think in terms of %, not a fixed pip or dollar value, so that way you'll be able to trade on any time frame.

cm69

I assume your definition of lot size is 10k not 100k (which is considered standard lot size) as each pip on the pair you mentioned would be worth only $1. Right?

bigmrfrank · May 28, 2009

Quote from cashmoney69:

your stop loss should be no more than 3% of your account. So say you have 5k in trading capital, then 150 is the max $ value you can risk on any trade.

Look at eur/usd on april 20th..we made a bottom. near 2896. the next day price broke previous candle's high (for me this is a long signal) I buy...my stop would be 2896, my entry, 3037.

Thats 144 pips from my entry to where i want my stop.. i take the 150 risk, and divide by the 144, and i get 1.06... this tells me i can take this trade on 1 lot with a 144 pip stop loss, and be well within the 3% risk limit

now look at may 17th on a 4hr for eur/usd. we bottomed at 3430, my entry would have been 3476. On this trade im risking much less pips...43 in this case, but still using the 3% rule, I can trade 3 lots instead of 1.

you need to think in terms of %, not a fixed pip or dollar value, so that way you'll be able to trade on any time frame.

cm69

You are partly correct - though I do applaud your risk management - well done.

Take the same scenario. Your entry is 3037 - great. You are willing to risk 3% fine. OK, now rather than setting some arbitrary stop based on what you are willing to LOSE (which is the same as a gambler who heads to the table with $150 to burn) find the point at which you could reasonably say you were wrong and the trade went against you. As the other poster correctly stated it would the the nearest heavily contested point of S/R. Now set your stop 10 - 20% past that range and there is your stop. If it's 162 pips from entry - trade smaller size to maintain 3%. If its 121 pips than you can take on a larger position with the same risk factor. Personally, I'd have to looking at a fairly long time frame to put on a 150 pip stop.

Use price action to determine stops and targets and you'll take down more $$$$$.

Oh and BTW, whoever suggested that 2:1 ratio and all that - total horse shit. That's what Pros tell the Joes to do - albeit tongue in cheek. Might as well stand on the hose while you're watering the garden.