" BEST " method to use for Stop Placement ?

Handle123 ,

Can you please give a bit of Detail of using MAE and MFE , as to what to look for , as a basis for using these two metrics in helping you adjust your Stop and Target(s) to their Maximum efficiency , in using them for analysis of a Trading System

Thanks so much

 

Who invented the stop loss? Is there any history on its development?

 

Hello,

I like to keep things simple. I have only worked with one trading strategy over 2 years.

When I was deciding the stop loss to use, I ask myself "how much money am I willing to lose per trade, in case the trade goes against me"

For example, I started trading the ES, and I said "For every trade I take, I do not want to lose more then $125 per trade".

So that was my starting point. Then I monitor each trade to see how well my stop loss was performing over time as well as my profit targets.

This also depends how you are trading and where you are placing your stops. Such as do you place stop under some support or above some resistance.

It also depends how you trade, discretionary or automated. If automated, you can always test multiple stop loss placements in a fast manner. If discretionary, then you pick a stop based off of the price action you see on the chart.

Also, I think stop loss placement just comes from general experience of just watching the chart or just reviewing how other trading strategies out there trade with stop loss.

 

Yeah ,
I tend to place my stops Under a strong / structural support or above Resistance , and then from there, I use a calculation , factoring in Only risking 3% of my account size on any single trade. This formula then gives me the Amount of contracts to trade, thus keeping me within my PER TRADE/Risk of my account size of 3% , While also allowing me to place my Stop at a Point at which I feel if Hit, was the Market " indicating to me " that my basis for the trade is incorrect and the Trend has now gone n favor the opposite direction

 

If trading breakouts on volume I place a stop just below the breakout bar. If the stop gets taken out then it is likely the breakout will fail at least in the short term.

This ensures a tight stop and maximum R-multiple reward in the shortest time.

If my stop gets taken out and then price breakouts out again then I can always get back in and this time the breakout is even more likely to be successful.

 

Newc2,

I trade breakouts as well, and one of my struggles is re-entry after a stop out (fail breakout).

What is your criteria or recommendation on re-entry of failed breakout? I have been testing some retrace distance before price trys to break out again. For example, if stop out, then don't re-enter unless price retrace of 20 ticks.

 

md2324,

I kind of do the same as well. I like to place stop at a distance below (if long position) support, but not too close to support. For instance, before taking a trade i like to measure the risk vs reward. I use the same stop amount for each trade for simplicity.

 

Every single price in an instrument is a support or resistance level. It just depends on how far back you are looking to establish the level and how much range around that price you determine is a sup/res level when it reverses. Mostly.

 

Well my best trades have been where I minimize risk by being selective on my risk. How do I be selective on my risk? By choosing an area in the market where within a few ticks, if it goes past that area, it would break the current "structure" of the market. Trading is never 100%. But most of the time, there is a structure and flow of the market.

I enter the trade in which most traders would have given up, then place my stop a few ticks near that "level". If I get stopped, since I don't have much "expectations" regarding the trade, I simply let it go and look for the same setup.

With that being said, I am guilty of being too risk adverse at times and place stops too tight...especially when it comes to futures. There have been times where I placed an entry for a short and stop and walked away...... well the market hit my stop(buy stop) and then tanked 300 points lower. So I am still balancing between too tight of a stop and wider stop...

 

I think you got it right. Its about the market structure or in this case change in market structure invalidating the trade. Question, how do you identify the areas where you place your stop?