Tight stop, wide stop, what stop?

Trading Views have an article over at their website, concerning Stop Losses. Now, everyone who knows my trading style knows

Trading Views have an article over at their website, concerning Stop Losses.

Now, everyone who knows my trading style knows I’m a proponent of tight stops, and that if a stop loss is too great, I’m out of there a million miles a second. However, what this article says is exactly what I say – by a “tight stop loss”, we don’t mean 15 or 20 or even 25 odd pips, we mean – a stop loss that in relation to your profit target, makes your trading worthwhile.

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The article reads, “There is nothing I hate more than getting stopped out of the market. I can stomach being wrong. Heck, I make losing trades all the time. But for me, there is nothing worse than getting stopped out of a trade, only to realize that if I had had my stops a “little wider” I would have made money. I had the trend nailed, but unfortunately I just kept my stops too tight. Not only have I have officially locked in a loss, but also added to some other traders P/L…the “P” part.”

Because look, what’s the point of entering a trade with a measly stop of 15 pips, and the trade not having enough room to breathe? You’re just gonna get stopped out more often than not (depending on which TF you’re trading), leading to frustration. So to be clear, even a seemingly wide stop loss like 200 pips can actually be a tight stop, as long as your profit target is setting a good risk: reward ratio.

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The article continues:

“I also have come to this conclusion: I have been trading for 15 years, and I know when I am wrong and I am willing to accept losses. New traders have a difficult time with this. I know exactly at what point I need to get out! That is what differentiates me and other successful traders from the rest of the traders who may be struggling… Some of you are thinking “Wow, 100 PIPs, that is a deep stop!””

To read the entire article, visit:

http://tradingviews.com/b/articles/archive/2010/05/13/trading-with-wider-stops-is-less-risky-for-me.aspx?cid=89700

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