Stop Loss Strategies

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Stop Loss Strategies

Postby User » Thu Jul 09, 2009 8:31 pm

Forum transfer: Submitted by pzalvo on November 18, 2008 - 07:59.

Let me apologize for the long post right up front. lol.

This is an extraordinarily friendly and helpful site.

I would like very much to start a discussion that deals with a subject that gets, I believe, far too little discussion and that is Stop Loss Strategy. I know, it's not as sexy as 100 pip winners, but it's important to know how to play both sides of the equation. Especially new traders.

Here's a problem faced by many (including myself) new traders who are working with limited funds:

The first problem is that you cannot afford large losses of fifty or one hundred pips because after ten or so losers your account has been decimated.

But that sets up the flip side and the second problem, which is getting stopped out of trades because the Stop Losses are too tight. Talk about a Catch-22!

It's heartbreaking getting stopped out of a trade and then watching it reverse and turn into a winner after you've been clobbered...and here's the danger for new traders...

After getting frustrated this way a few times you set wider stops and lose larger sums of money.

So, what to do?

I have had good success, suffered smaller losses and stayed in more winners by employing Bollinger, 8sma and 21 sma.

Choose any pair, open a one hour chart and study how the price behaves. If the price is not going to pass through both averages and head to the opposite Bollinger Band (or close to it), it will often bounce off either the 8 or the 21. Sometimes it will pass through one of the averages and then bounce off the other.

Try setting your stops on the opposite moving average of your trade +10 pips. (Keep an eye on support and resistance levels too!) The thing is you have to monitor this and adjust the stop as the trade progresses, but the bottom line is that you can set wider stops with confidence. Other times, you can set tighter stops and not risk as much of your account balance.

Thanks!
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Re: Stop Loss Strategies

Postby User » Thu Jul 09, 2009 8:32 pm

Forum transfer: Submitted by Manus168 on November 18, 2008 - 18:02.

Hi My Friend,

Can you described more specific, especially Bollinger Band which Parameter did you mean are the Period 20 & Deviation 2 maybe, which Support & Resistance did you mean are the Visual S/R (Horizontal & Trendline), Pivot Point S/R, or Camarilla Equation, Murrey Mathe S/R, etc; & can you give a screenshoot & more detailed explanation, please ?

Thank You;


Regards;


Manus168
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Re: Stop Loss Strategies

Postby User » Thu Jul 09, 2009 8:34 pm

Forum transfer: Submitted by pzalvo on November 19, 2008 - 04:28.

This is to follow up on a thread started yesterday.

EUR/USD 60 minute chart
Indicators:
8 SMA, 21 SMA, Bollinger Bands (20, 2)

Short taken at 1.2707
Stop loss at 1.2752
Target 1.2450

Ordinarily I would set a Stop Loss at prior resistance, (regular Horizontal Resistance), which in this case was 1.2789. That sets up a potential loss of 82 pips.

However, I cannot afford large losses, so I look to limit them when I can. Here's what I did.

The trade unfolded this way:

1. Short entered at 1.2707, Stop Loss at 1.2752 which was 21 SMA +10 pips.

2. Price rose above 8 SMA, but stayed under 21 SMA. That was okay and I didn't have to change anything, but it did get my attention. I was now vigilant for a break of the 21 SMA.

3. Price broke 21 SMA, but closed below it. At this point I was hoping it would bounce off the 21 and head down again. However, if the price closed above the 21 SMA there was a good chance that it would run up to the upper Bollinger Band.

4. Price closed above 21 SMA, so I exited the short and reversed into a long. Even if the long didn't run all the way to the upper Bollinger it should come close and I could lessen my losses.

5. Price ran up to upper Bollinger (and beyond), and I took profit of 50 pips at 1.2789.

50 pips profit minus the 22 I lost on the short left me with a 28 pip profit! Every trade should be that nice and neat!!

I hope you can see the chart I've attached clearly enough because this is tough to explain by words alone.

The 8, 21 and Bollinger have been the best I've used so far because they are fairly predictable and actually offer trade opportunites in themselves.

Try opening a 60 minute chart in any pair and study how the break of these two lines make the price run in relation to Bollinger. Other numbers I've tried have not been as reliable and I don't know why. The only thing I can think of is that 8 and 21 are Fibonacci numbers and the simple moving averages offer exactly what's going on.

You can also add in 89 SMA and 200 SMA and MACD if you're looking for trade openings.

There you have it!

I hope this helps!
Attachments
stoploss.png
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Re: Stop Loss Strategies

Postby User » Thu Jul 09, 2009 8:34 pm

Forum transfer: Submitted by Manus168 on November 19, 2008 - 18:11.

Thank You very much.

Regards;

Manus168
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