stop loss, profit target and trailing stop
Profit target depends on your method for entry, fixed, ATR, Filbo, channel, even none (just SL.)
For SL, there is fixed, trailing, lowest low(N bars back)+const, SAR, ATR, and many more.
Then there is one order/one stop vs two orders with two targets. The latter sacrifices some potential profit for larger stop loses than the former.
There is no one best for all methods and all market conditions.
Exactly. They trade many small wins for a few big losses. They can advertise 86=99% win ratios, but in reality can wipe your account. Been there, tried that.
The trailing SL I'm currently using is (for a buy) the maximum( High[1]-ATR*2.5, lowest low(4bars)-9pips) H1 timeframe. Values per the optimizer.
I found that ATR was better (tighter) than SAR.
FWIW
Profit target depends on your method for entry, fixed, ATR, Filbo, channel, even none (just SL.)
For SL, there is fixed, trailing, lowest low(N bars back)+const, SAR, ATR, and many more.
Then there is one order/one stop vs two orders with two targets. The latter sacrifices some potential profit for larger stop loses than the former.
There is no one best for all methods and all market conditions.
Exactly. They trade many small wins for a few big losses. They can advertise 86=99% win ratios, but in reality can wipe your account. Been there, tried that.
The trailing SL I'm currently using is (for a buy) the maximum( High[1]-ATR*2.5, lowest low(4bars)-9pips) H1 timeframe. Values per the optimizer.
I found that ATR was better (tighter) than SAR.
FWIW
Thank you for the comment. That looks like a good formula for H1 timeframe. If you shave the 9 pips to 3 pips, it might also apply to the M15 timeframe because ATR and the other values automatically shrink.
Though a bit lengthy, this article has some helpful thoughts about setting sl: https://www.mql5.com/en/articles/1571
engcomp wrote >>
..........a very wide stop loss with a very narrow profit target. This results in many winning trades but has the potential of a wipe out. Not my idea of a good risk/reward ratio!
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For a broader look into the scope of limiting loses ie: money management, may I suggest
1) The Real Holy Grail : Money Management techniques of top traders by Gordon Publishing Group
2) Quantitative Trading and Money Management, A guide to Risk Analysis and Trading Survival : Fred Gehm
Both treat the topic of risk/reward extensively.
It made me re-think my concept of dealing with loses entirely.
Over time, for me, this has been more important than trading technique.
Seems most of can get in, in the right direction - but can we make money?
Though a bit lengthy, this article has some helpful thoughts about setting sl: https://www.mql5.com/en/articles/1571
Thank you for the link, joetrader. You are right – the article is a bit long, especially if you also follow the side links, but it answers my question. I suspected that there must be a way to rationally set the stoploss. My crude approach at present is to pass a minimum SL to the EA and then let the EA determine if the SL should by greater, based on current volatility. I do the same with trailing stops. They change dynamically as the market progresses in my favour, increasing during the violent stage and decreasing as it slows. The article provides a way beyond ATR to set the parameters.
Does anybody know of any research into the proper relationship between stop loss, profit target and trailing stop levels?
Firstly, the levels would of course vary between different time frames – the longer the frame, the larger the values.
Assuming that one can calculate the optimum stop loss for each of the nine time frames that MT4 offers, for example, say it is 15 pips for trading the M15 time frame.
Then the question is where to set the profit target and trailing stop as a multiple of the stop loss?
Say we test profit targets of 15, 30 and 60 pips with no trailing stop? Presumably the ratio of stopped out trades to winning trades would go up in proportion.
Or compare targets of 30 and 60 with a trailing stop of 15. For every trade that ends at 60, there would be many that end at 15+ when they could have ended at 30.
Anybody knows the answer?
In the absence of calculating the optimum stop loss by statistical means, traders have adopted several models, for example:
- below the lowest low (for long) or above the highest high (for short) of the last x bars by a proprietary number of pips; or
- a measure of standard deviation or average trading range over x bars multiplied by a proprietary factor.
Whatever method is adopted for setting the stop loss, there remains the question of profit target.
Many of the expert advisors (EAs) I looked at have a very wide stop loss with a very narrow profit target. This results in many winning trades but has the potential of a wipe out. Not my idea of a good risk/reward ratio!
Any comment, please?
You should use a 2 to 1 reward risk ratio at least. I am using a 18 for stop and 36 for the Target price. These are not bad for short time or Daytrades. I have had many hit the Target price which is very important. You need to have the majority of trades hit the Target. Otherwise your losses won't be covered.
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Does anybody know of any research into the proper relationship between stop loss, profit target and trailing stop levels?
Firstly, the levels would of course vary between different time frames – the longer the frame, the larger the values.
Assuming that one can calculate the optimum stop loss for each of the nine time frames that MT4 offers, for example, say it is 15 pips for trading the M15 time frame.
Then the question is where to set the profit target and trailing stop as a multiple of the stop loss?
Say we test profit targets of 15, 30 and 60 pips with no trailing stop? Presumably the ratio of stopped out trades to winning trades would go up in proportion.
Or compare targets of 30 and 60 with a trailing stop of 15. For every trade that ends at 60, there would be many that end at 15+ when they could have ended at 30.
Anybody knows the answer?
In the absence of calculating the optimum stop loss by statistical means, traders have adopted several models, for example:
Whatever method is adopted for setting the stop loss, there remains the question of profit target.
Many of the expert advisors (EAs) I looked at have a very wide stop loss with a very narrow profit target. This results in many winning trades but has the potential of a wipe out. Not my idea of a good risk/reward ratio!
Any comment, please?