Hi Traders. Today's topic is requested some of the followers, wondering why they're constantly getting stopped out OR misled by the "stop-hunt" concept. Have you ever questioned what's the purpose of a stop loss (SL) in the first place? Majority is taking SL as a tool to maximize their position sizing rather than an emergency break preventing yourself from a heavy collision. SL is nothing, but the final defense that determines the validity of the setup. Once it is being triggered, admit that you're wrong, close out the position and move on. Either way, if you're constantly moving your SL OR having it too tight, you've clearly misunderstood the purpose of SL all the while. Above illustration is solely for demonstration purposes, not a general indication of all.
Questions before you determine a SL location:
1. Is my SL obvious? Is it sensible?
2. Where's the majority placing their SL?
3. If it is triggered, is the setup still valid?
4. Should I re-enter?
5. Is the Risk-to-Reward reasonable?
6. Re-assessment (Does my strategy fits well into the current market context?)
Solutions:
- Emotional control (Constantly remind yourself the purpose of a SL)
- Use an ATR-based SL (Eg. 1 ATR below the swing low)
- Determine the volume/ volatility of the market (Eg. If the volatility is high, give it more room and expect some spikes)
- Back-test (How to improve your expectancy? Prove it through statistics)
- Ensure the Risk-to-Reward is favorable before you even consider placing a trade
- Forward-testing with smaller sizing to identify the performance in the live market condition
- Wider SL does not mean it is better!
No matter how good you are, there will be times where the markets prove you wrong. Keep learning and practicing! Stop the blame, the only person in charge of your decision and success is you.
"Losses are necessary, as long as they are associated with a technique to help you learn from them" - David Sikhosana
Trade safe as usual.
Do follow my profile for daily fx forecast & educational content.
Questions before you determine a SL location:
1. Is my SL obvious? Is it sensible?
2. Where's the majority placing their SL?
3. If it is triggered, is the setup still valid?
4. Should I re-enter?
5. Is the Risk-to-Reward reasonable?
6. Re-assessment (Does my strategy fits well into the current market context?)
Solutions:
- Emotional control (Constantly remind yourself the purpose of a SL)
- Use an ATR-based SL (Eg. 1 ATR below the swing low)
- Determine the volume/ volatility of the market (Eg. If the volatility is high, give it more room and expect some spikes)
- Back-test (How to improve your expectancy? Prove it through statistics)
- Ensure the Risk-to-Reward is favorable before you even consider placing a trade
- Forward-testing with smaller sizing to identify the performance in the live market condition
- Wider SL does not mean it is better!
No matter how good you are, there will be times where the markets prove you wrong. Keep learning and practicing! Stop the blame, the only person in charge of your decision and success is you.
"Losses are necessary, as long as they are associated with a technique to help you learn from them" - David Sikhosana
Trade safe as usual.
Do follow my profile for daily fx forecast & educational content.