3 Simple Rules for Stop-Losses

After 19 Coments this are my conclusions It's better to set SL first. Then entry. Rather than Entry then to set abritrary SL. Usually based on a dollar amount kind of stuff. Advise to loosen the SL if too tight. Because Losses can add up quickly, Even if your idea turns profitable. Eliminate the false negatives. To be taken out on winners. Size's more important than price. But often we prefer to add contracts, Rather than to increase,widen, the SL. After it depends ... What's your Expectancy ? With a tighter or a wider stop loss ? I'd personally go for less leverage, But a wider stop loss. For less False Negatives. Which is to lose money on a trade that's actually not bad. To let room for noise from Algos and scalpers to be harmless. Some take volatility into consideration, They say tight / loose SL when non volatile / volatile. Depends ... It's conditional on volatility, entry, expectations. But not on a dollar amount or other arbitrary, abstracted, parameters. But always have a predefined exit point. And STICK TO YOUR PLAN. PS: One Key Word here is OPTIONALITY With wide SL you still have the choice to get out tight. Where on tight ones, you're taken out, even if still convinced. Plus with wide SL. It can gives you an opportunity to break even.

You can also use options instead: https://www.celtinvest.com/mettre-un-stop-est-une-erreur

Another area where an overly simplistic view of reward/risk falls down is assessing the reward/risk profile of a trading system. Instead of generically thinking about reward to risk, consider three distinct measures: 1. Targeted reward/risk 2. Current reward/risk 3. Effective reward/risk Targeted reward/risk is what we commonly refer to as the reward/risk ratio. It is based on the reward/risk profile of the trade prior to entry. For example, if you are looking to make 3 units for every one unit you risk, then your targeted reward/risk ratio is 3:1. The current reward/risk is the live reward/risk profile of your trade as it changes throughout the lifecycle of your position. For example, you might start with a targeted ratio of 2:1, and then after you are in the position, you adjust your stops, take profits, or add size to the trade as part of your trade management rules. As the live trade progresses, the current reward/risk profile may vary drastically. (One note — Van Tharp recommends that you never let your current reward/risk ratio to decline to less than 1:1 while in a trade.) Improving Reward/Risk Ratio vs Static Reward/Risk The effective reward/risk ratio is your ending reward/risk profile across a number of trades. For example, your average winning trade in a system might be three times larger than your average losing trade. In such a case, you might have a targeted reward/risk of 2:1. If your average loss is 0.3 and average win is 0.9, you would divide your average win by your average loss to reveal an effective reward/risk of 3:1 — substantially better than it the initial or targeted reward/risk ratio. Of course, you might have the reverse. A system that targets 3:1 could end up with an effective risk reward of 1.5:1 or worse. It gets really interesting once you start running comparisons with win rates factored in. For example, would you rather have a trading strategy that makes +0.9R on average and loses -0.3R on average (for an effective reward/risk of 3:1) with a 60% win rate, or a system with a targeted reward/risk of 3:1 and a 40% win rate? Without a detailed knowledge of reward/risk, many traders would choose the system with the 3:1 targeted reward/risk and 40% win rate. But if you grasp the concept of effective reward/risk analysis, you might find the system that makes 0.9R just suits you better. It would probably be easier to trade so you would make fewer mistakes and the resulting higher quality would allow you to trade it with more aggressive or more creative position sizing strategies.

I like the hard stop because it's very difficult during a high volatility period to be watching all positions at once.Also, sometimes you can get major slippage due to velocity of price movement by the time you actually get the order in. I personally use stop limit orders both on the buy side as well as the sell side. It gives me the flexibility to assess the situation if there is a price gap due to some news or event.

There's always the trailing stop to break even as well that makes a nice level for the stop loss