One of the remarkable mysteries that we have tried to investigate during our trading career is the attraction to tight stop loss parameters. We only don’t get it; it is a trade perfect because you won with a tight stop loss as opposed to a wider stop loss? We assume the common theory is that you are in less danger with a tight stop and conversely, your danger is more with a wider stop. Look we only want to win commodity and stock market and we try to set goals that reflect the common context of the market. In some markets, tight stops are suitable; in other market phases, tight stops can be a problem.
We don’t want to get stopped out by market noise; we don’t want to get stopped out; even more to the point. Our point is an easy one, when you know the market has a top level of volatility you must adjust your trading to present market situations.
Only Tight Stop loss is not enough. How big or small it should be is also equaly important. Many traders answer with the argument that tight stops, restrict losses, which is real. But that is only half the story; inappropriately sized loss and profit targets result in a loss unless the market moves positively in the way of your trade. How often does that happen? Here is the reply, not too often. On the other hand, you don’t have to permit the market price to slam into your stop. If you see a trade moving quickly against you, either reverse or exit the trade. That being said that, regardless of loss/stop setting, you are still liable for management of your trade. Traders tend to ride the price of market down with baffling regularity and often take revenues too soon. This is a recipe for problem.
Research proves that wider stop loss is more profitable than smaller stop loss: We should also reveal that research by several notable traders found that wider stops resulted in a more profitable and consistent equity curve when matched to the trader who set trading parameters that are unsuitable for the context of the market. In other words, let your trade progress correctly by giving it the possibility to “develop.”
Conclusion : Look, our point is an extremely simple one; size your trading parameters in accordance with present market conditions and manage your trade in a fashion that does not contain getting stopped out by market volatile or noise trading conditions.
Daily we get 100 of calls asking what is the size of your stop loss in so and so commodity or script. This is a wrong way of trading. Stop loss and size of target should be judged by the volatility of the particular commodity or script and it changes daily.
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