Background:. I recently attended a webinar where the speaker said that 20% of the effort put into a trade should be spent on the stop. So I've decided to spend some time a looking at my stops, how I use them etc... As the goal is obviously to improve my trading I thought I would also reach out to the forum. To start things off... I'm current using tight fixed stops for breakouts (either above or below resistance/support). I vary the fixed amount depending on things like how major the level is and what the market is showing. As people will want to know the success rate generally it work. I have a tenancy to set it a little tight (to protect against a falling knife) and as I primarily do scalp trades in the futures markets I have been sloppy at times (meaning taken the trade when it was not supported by the market activity)... lol... another area I am working on.
how the hell do you measure 20% of effort? sounds like someone pulling something out of his ass in order to sound knowledgeable to people who don't know better
The simple answer to your quest is to code your system and test it historically. Add the stop or other stop methds to see its effects. However, you will see that stops more often than not tend to deteriorate the performance of a system.
most quality trade setups naturally have a good risk:reward (tight stop), but remember just because your using a 1:3 risk:reward or better that doesnt replace having an edge. Try using a tight 1 point stop trading the ES with a 3 point target, it sounds nice but just doesnt work.