Stop Loss for a Crossover Strategy

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Re: Stop Loss for a Crossover Strategy

Postby Edward Revy » Tue Feb 09, 2010 9:03 pm

With EURCHF you can have tight daily range figures, which will give you tight stops when relying on the indicator.

You have to remember though, that indicators are "robots", which follow the script, and can't "see" the charts or adjust, but traders can.
Sometimes it is necessary to ignore the indicator, when it sends signals that make little sense. Another option would be to avoid trading during such days and stick to the rules.

xxx/JPY pairs have 2 decimal points on 4 digit platforms, and 3 decimal points on 5 digit platforms.

Best regards,
Edward
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Re: Stop Loss for a Crossover Strategy

Postby Ghaz » Mon Feb 22, 2010 5:13 pm

hey Edward,

your board and forum is SO helpfull for me.
I learned very much i am happy to get this chance. Ok, back to my problem. Because i dont have the time to look everytime to the charts i have looked for a stretegy thats fits MY timefrime. I have choosen a daily strategy from here http://forex-strategies-revealed.com/simple/stochastic-emas-cross.Also i use the 9 EMA :wink: and ADX to verify my entry point.
I have also a fine money management calculator here where i can calculate how many lots I can buy with 1% risk. Very cool.
I have to give in how many pips my stop loss is. Now my problem. Like you say before i can choose fractals. I dont know if i can take them in the daily frame because they can be away thousands of pips. And that blasts my money management of cause!!
I now use daily range calculator and set my stop loss at the 20 day range (for example 201 Pips at GBPJPY). Is that ok?
At the moment I am in gbpjpy (sell),gbpchf (sell),and eurgbp(buy).

I have uploaded this COOL calculator for everyone...have fun!


Flo

P.S.: How much should my leverage be?-I learned that it is irrelevant when you have good money management, because of the lot size. So i have a 1:100 leverage. It is NOT the true leverage. It is always under 5:1!!!
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Re: Stop Loss for a Crossover Strategy

Postby Ghaz » Tue Feb 23, 2010 12:21 pm

hi everybody,

sorry for my second reply but I cant edit my last post.
Today I have been stopped out from two trades by stop losses. I calculated the losses NOT to lose more than 5 Dollar of my fictional deposit (500 bucks). How could I lost 15 Dollar once?-is it the overnight swap?-or the high leverage of 1:100?
All my trades go in my favour but I was stopped out. It is SO :evil:


best regards,


Florian
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Re: Stop Loss for a Crossover Strategy

Postby Edward Revy » Wed Mar 10, 2010 8:07 pm

Hi Florian,

Thank you for sharing the calculator, it's a nice tool.

I've seen some of your previous posts, and so to summarise that:
When you choose to risk no more than 1% of your account balance, you'll get $5 allowance with $500 deposit.

It is simple to figure out the maximum stop loss you can afford:

1. You need to know the pip value for the currency pair you want to trade with.
If we take GBPJPY, and choose to trade 0.01 lot, the value of 1 pip will be equal to 11 cents.

(It is easy to check with any website where they have live pip value calculators, like the following one:
http://forex-trading-signals.net/pip-calculator , on that page we need the second calculator, where we input the following parameters:
Base Currency: USD
Leverage: 100
Size: 1000 (units)
and ask to show us the pip values for different currency pairs.
(That calculator uses actual real time data).

2. So, now that we know that each pip on GBPJPY will cost us 11 cents, we can quickly estimate the maximum allowed stop distance for our $5.
It'll be $5 / 0.11$ = 45 pips.

That's it.


3. Now, if you place 200 pips stop, that equals to about 5% risk opposed to 1% risk you wanted to use initially.
Is it ok? I'd say, up to 5% is ok, as long as you feel good about the risk. But a normal practice is to not exceed 2-3%.

4. The leverage size is irrelevant as long as you keep the money management cool & sound. The leverage leverages your abilities to buy more, but why would a normal trader buy more, when this increases the risks of losing more should the trade go wrong? Thus, sizing your trades according to the money management rules will never ever put you in trouble!
Where the high leverage is helpful, it is when you lost some money, or never deposited more than $25-$50, or when you're currently holding a losing trade so that your available margin is running out, that's where you've got no option but to leverage yourself higher in order to keep the buying ability alive. In this case the higher leverage is your only option & a saver (if I can say so), because it enables you to trade, which otherwise won't be possible.
So, the leverage doesn't bite, when you handle it correctly.

Best regards,
Edward
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