Is your stop loss too close? Arguments for both directions

On the one hand, it's interesting to put a stop loss close and potentially get a 9R + trade. After all, the smaller your risk, the higher your chances of getting a payout than you currently have. But that also means you can be "stopped out" more often.


On the other hand, the idea for your trade to have room to breathe is also very appealing. The market goes up and down and you won't know when the price will bounce back before continuing its flow. However, if you give your trade too much room, then your profits may suffer because your winning trade will not be salvaged for a losing trade.

So which one is better?

The right way to choose the best stop loss place for you

The bottom line is, your stop loss should be set at the level where your assumption of the trade will be proven false.

Some traders will tell you that a tight stop loss of 8-12 pips is best. Others will tell you that a stop loss of 200 pips or more is best. Many people will recommend using an indicator like the ATR.

So who should you trust?

Well, maybe they're both right ... in their own way. As long as they really trade what they recommend, and not just talk, their method is best for them.

However, that is the secret that makes you fail.

If their method does not suit your trading personality, there is a high chance that you will not be able to trade successfully using that method.

It's like dating someone who snores like a horse ... when you're someone who has a hard time sleeping!


Finally, you have to break up with them if you want a good night's sleep.

So, just as dating is a way to test any relationship before you enter into a permanent marriage commitment, testing a trading system is a way to test one before you impersonate it. risk against any real money.

Here's how to do it ...

First, let's start with the system, as was instructed. It doesn't matter where you get the trading system from. The trading method can work as it is without any adjustments.

Do a round of backtesting on the currency pair and timeframe of your choice. It is important that you perform a complete test to know what you can expect.


Then, change the stop loss and execute a complete round of testing again.

Compare your results.

This will let you know which stop loss will perform better.

But don't stop there. Check out many different stops if you need to.

At this stage, feel free to experiment, it's just an experiment!

After you've got an effective stop loss during backtesting, it's time to move on to forward testing. This is the step before you trade real, so use a demo account or a very small real account!

Forward testing will allow you to solve any problems going on between backtesting and forward testing.

Once you have something working in both rounds, you can seriously start implementing it on a real account!

Going through this process will help you understand what is the best place to place your stop loss.

How to fix artificial close stops

Some traders intentionally set very tight stops because the exact stop loss is "too far" and they will lose too much money.

If you are one of them, then you are just mistakenly trading with a broker.

Trading with mini lots (1,000 units) on a $ 1,000 account is a recipe for disaster. It's no surprise you want to keep your stop loss too close to the entry point.

However, with an account of the same size, trading on nano lots will allow you to accept the correct level of risk, usually 1% or less. When you can accept the exact amount of risk per trade, you will make more money.