Trading with a Stop

In my trading methodology and systems the single most important question I ask is where to place stops.  I believe if I have the right stop I can take more trades.  If the stop does not get hit then profits run for longer and if my stops do get it then, ideally, I’m happy to lose a little than a lot.

Having identified the appropriate stop level will lead to answering many of the other trading questions: how big should the trade be (lot sizing), where are potential take profit areas and how to manage trades accordingly.  Another benefit of knowing where ideal stops are is often it may suggest not to take the trade.  If the risk is to big then perhaps I may want to wait for a better risk to reward ratio.
Anyone who shares a trading system or style or set up can always find examples of where they would be successful, but the more consistent reliable trader wants to know when a system or set up fails and how to reduce losses.


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