To use stops or not to use stops..

T

tschmidt1234

That is the question. I trade EUR/USD amongst other currency pairs. I have made some big gains by letting my risk tolerance go just a bit more than when I started the trade, and also been frustratingly stopped out of trade after trade with the market reversing my original direction as soon as I got stopped.

Is the secret with stops to set them at technical levels that you think, if violated, will lead to a breakout? If that's the case, is it even possible to use stops with scalping? I guess that's my real question, if you're going for say just 5-10 pips on any given trade, how do you manage your risk effectively??

thanks,
tyler
 
Quote from tschmidt1234:

That is the question. I trade EUR/USD amongst other currency pairs. I have made some big gains by letting my risk tolerance go just a bit more than when I started the trade, and also been frustratingly stopped out of trade after trade with the market reversing my original direction as soon as I got stopped.

Is the secret with stops to set them at technical levels that you think, if violated, will lead to a breakout? If that's the case, is it even possible to use stops with scalping? I guess that's my real question, if you're going for say just 5-10 pips on any given trade, how do you manage your risk effectively??

thanks,
tyler
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Very good question(s)! Thanks for the thread! :p
 
Quote from tschmidt1234:

I guess that's my real question, if you're going for say just 5-10 pips on any given trade, how do you manage your risk effectively??
More...
You wait for the setups that have the highest probability of success according to your plan. Sometimes a trade is profitable, sometimes it isn't. And sometimes you'll get whipsawed - just take it one trade at a time. Good luck Tyler.
 
Quote from datamerc:

You wait for the setups that have the highest probability of success according to your plan. Sometimes a trade is profitable, sometimes it isn't. And sometimes you'll get whipsawed - just take it one trade at a time. Good luck Tyler.
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I agree!
 
read the journal: intraday fx player the short answer is yes you have to use stops if you are scalping, otherwise you will get killed. To get the 'right' stops takes some subjective judgement, but most of the time they are rather close.
 
Regardless about what you believe about how markets work, it is mathematically foolish to go for 5-10 pip winners when you're paying 2 or 3 pips on a trade. 20-60% of your winners get eaten by costs and then you still have to pay when you lose aswell.

Trading shorter time frames is exponentially more difficult than longer ones. Try trading on 60 min charts and you'll be able to cut the effects of costs on your performance.

Trading without stops will get you into big trouble, sooner or later. I'd rather bleed my account to death than fool myself by doing okay for a while without stops and then have my account blow out quicker than what you ever thought possible.

Been there done that.

Play with your r/r parameters and see what works.

Some might argue that stops aren't necessary if you play small enough. That is fine, but to make decent returns you have to take decent risks.

To trade with stops you need discipline, which is the one thing you need above all else to trade.
 
Quote from tschmidt1234:

That is the question. I trade EUR/USD amongst other currency pairs. I have made some big gains by letting my risk tolerance go just a bit more than when I started the trade, and also been frustratingly stopped out of trade after trade with the market reversing my original direction as soon as I got stopped.

Is the secret with stops to set them at technical levels that you think, if violated, will lead to a breakout?

thanks,
tyler
More...

Tyler,

Perhaps the first issue to address is why you are trading Fx rather than a more regulated instrument.

Should you move to futos, your question regarding stops should take care of itself.

regards
f9
 
Thanks for the input, guys. I realize forex is quite unregulated, and that does bother me, but OANDA does seem to be pretty straight, and <1 pip spread on the EUR/USD is very attractive. Additionally, being able to trade all hours of the day is fun, because I find that a lot of times if there is a big move during New York and Tokyo, London will often do the same move (like a delayed reaction).

I rarely scalp anymore, as the tight stops you need to maintain a decent r/r ratio basically turn the trades into coin tosses. To me, the only true "scalping" technique is to buy and sell the bottoms and tops, respectively, of a clearly defined range with low volatility. So, now I look for larger trends (30 min, 1 hr charts) and buy dips/sell rallies. The stop is mostly to protect me from the risk of a trend reversal.

I've tried using fibonacci (sp?) trendlines and "technical indicators" to get my timing exact, but those are just another way of interpreting price action, so why not just read price (and perhaps account for volume)?

Here's what I wrote to myself after I got stopped out of a trade and passed out from exhaustion: "BUY LOW, SELL HIGH! Never sell after a protracted down move unless there is a concrete reason to believe a breakout is imminent (news, market open). likewise, only buy when you are at range lows and there is upward bias."

all the best,
tyler
 
I found my optimal stop/limit combination by backtesting using historical data. Only then did I use them going forward with real money.
 
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