Originally posted at forexfactory on June 25, 2010
Originally Posted by LeonlorenzoWhat is the chance of the best place to put your stop also being your entry price?
Probably a low chance. But decisions need to made about trade management and you only have a limited amount of information to play with. An ideal trade would consist of placing your stop at level where in order for the market to hit it, it needs to get through 10 billion worth of orders a few pips before your stop loss. But such exquisite stop placement is very rare indeed, and you probably don’t have access to that information anyways.
Some systems need to give their trades some wiggle room others don’t. So lets say your 300 pips in profit on a swing trade. You eventually need to make a decision. Do I take profit. partial profit? Stop to breakeven? Stop below the recent high/low? Some other trailing stop strategy? Etc
Some other systems benefit greatly from getting stop to breakeven as if your in profit by x amount and the market reverses on you the trade is going to be a loser. Your system may tell you that if the market reverses on you chances are the trade is done and you need to get out at break even saving you the full loss.
It all really depends on what your system is.