How many pips is your SL?

Every time I see this question, I’m afraid that my answer might be misinterpreted.

Managing a SL is a very complex task if you use a predetermined amount of pips per trade. Many traders use a fixed SL for every TF (time frame) arguing that they won’t increase their risk. A Big TF trade is usually seen as one that involves a wider SL and therefore a greater risk.

While the risk percentage should be the same (I prefer 0.5% to 2%) the amount of pips used for a SL should be adjustable to every trade. It is very important to note that every trade is different and presents singular conditions. Even if your account is considerably small, one can still trade Daily, Weekly or even Monthly TF’s risking the same percentage as you do in a M15 or M30 TF’s. It is also important to work with a very good RRR (risk to reward ratio); example: If you have entered in a trade based on a daily TF and you have determined that the proper SL might be 80 pips, your target should be at least twice as big, in this case 160 pips (I usually look for 4:1 and better).

I’m not going to discuss where the SL should be placed, instead the MM (money management) behind it. For the following examples let’s pretend that my account is $10,000 and my maximum risk is 1% per trade. (Following charts are for illustration purpose only)

1. In this case I have determined that placing the SL just below Support will do the job, so I’m giving it 15 pips tolerance.

2. Let’s say the TL broke and I have entered at the retest. I used the lowest point of the previous range to determine my SL which is 45 pips away, and 61% fib as my target. Since I see that just below 61% fib is the top of a previous resistance I decide to lower the target to that level.

3. Think that this is the most perfect flag and it has already broke the UTL and I have entered at the retest. I’m using E point as my SL, and the flag technical Target as my objective.

4. Let’s assume that this is a perfect Gartley pattern in confluence with a 38% Fib, so the trade is taken and X point is used as SL and C point as target.

I know some brokers/platforms use a preset lot size, if this is your case, I’d recommend looking for one that gives you the option to adjust this value.

My 2 Cents

Coke.