Tight Stoploss
A tight stop will produce whipsaw losses in trading ranges. Even though each loss may be small,the sum of a series of losses can be larger ! However a trending market will rescue a system with tight stops and results are astonishing.
A tight stop will produce whipsaw losses in trading ranges. Even though each loss may be small,the sum of a series of losses can be larger ! However a trending market will rescue a system with tight stops and results are astonishing.
Loose stoploss
A loose stop will prevent whip-saw losses in a trading range but will have large drawdowns as well as poor RR ratio. As we loosen the stop, more of the winning trades as well as losing trade from a false signal can survive longer.
A loose stop will prevent whip-saw losses in a trading range but will have large drawdowns as well as poor RR ratio. As we loosen the stop, more of the winning trades as well as losing trade from a false signal can survive longer.
Also psychologically many traders feel an aversion to taking a big loss, even though they have no problem taking many small ones.
Discretionary stoploss
Helps to bypass the magnet effect of stoploss. Often, the stop acts as a magnet for prices. It seems the market hits the stop, only to reverse and resume the previous trend.
Helps to bypass the magnet effect of stoploss. Often, the stop acts as a magnet for prices. It seems the market hits the stop, only to reverse and resume the previous trend.
Hence you will have a well-defined exit price, but will not place an order in the market. But you have to monitor the market in real time, and will place the exit order themselves if needed. It requires good discipline and judgment
Arbitary Stop loss
A same dollar stop on every trade may be too tight or too loose.
A same dollar stop on every trade may be too tight or too loose.
Relative Stoploss (Best )
Your back test data of stock you decide to trade. Once you start loosening from a tight stoploss ,the profits increase and then change more slowly and when you pass some volatility threshold, increasing the initial stop adds little value.
Your back test data of stock you decide to trade. Once you start loosening from a tight stoploss ,the profits increase and then change more slowly and when you pass some volatility threshold, increasing the initial stop adds little value.
Find which stoploss gives more edge in longterm and suits you. However this stoploss requires retesting the system multiple times to suit your preferences and requires periodic update.
End Note
Always try to take the long-term view when you set your stops.
The risk of being stopped out is highest near trade inception . Hence its okay to try once again but never if stopped out twice.
Always try to take the long-term view when you set your stops.
The risk of being stopped out is highest near trade inception . Hence its okay to try once again but never if stopped out twice.
credits-Tushar Chande
