Questions regarding stop loss. I hit up on that topic again and read a bit in ff. Let me come up with an interesting fact about it.
Here is the experiment: You are trading using a take profit of 20 pips. You want to know the probability of being stopped out if your stop loss is 1 pip. Believing Laplace it's
P (SL) = SL / (TP SL) = 95%
Spoon-fed: Cease loss in pips divided by the amount of take profit in pips and stop loss in pips equals the ratio of hitting stop. If your stop loss is 1 pip along with your take profit is 20 pips than it's likely about 95% which you are being stopped out.
Now lets compute the ratio for every mixture of stop loss and take profit from 1/20, 2/20,, 20/20 and plot it on a chart.
the opportunity of being stopped out is decreasing with a expanding stop loss. The bigger the stop loss the better it is? I dunfor certain as I blow up more than 1 account with no stop loss at all...
Step two of the experiment: It will demone a excellent reason not only to trade using a stop loss except to trade with a stop loss as little as you can. Assuming you have a egy that is only marginally slightly profitable. You need to have, otherwise I see no reason of taking part at this 17, at all. In the event you've got, the association between the drawdown of your account and the size of your stop loss is as follows:
The bigger your stop loss is the smaller is the drawdown as well. Although a little stop reduction means to be stopped out.
I try to evidence that relationship with a neutral approach. That means I'm not relying on my own or somebody elses trading encounter but on an experimental estimation.
I wrote an algorithm that is carrying out 1000 transactions by opportunity. It is doing this until it's an effect that is at least a bit profitable. In the next step the drawdown of those 1000 transactions is calculated. The process is done for every mixture of stop loss and take profit from 1/20, 2/20,..., 20/20 and down the draw is plot on a chart:
that's probably the main reason why you have noticed so frequently to cut your losses short.
Some information about the quote:
The initial account balance is 1000 USD. The volume is 0.1 lot. For every combination of stop loss and take profit the calculation is performed 100 times. The values plotted are the averages of each 100 calculations.