Stop Loss

Stop Losses are an essential risk management tool for limiting potential loss. The Pro Tester allows users to backtest strategies containing Stop Loss settings.

General Principles

• Stop losses are an essential Risk Management tool for limiting potential loss.

• Set the Stop Loss Level based on market conditions and your risk tolerance.

• Place stop loss orders immediately upon entering a trade.

• Stick to stop loss levels and avoid emotional decisions.

• Avoid moving stop loss further from the entry point.

• Consider using Trailing Stop Loss orders to lock in profit.

• Combine Stop Loss orders with proper position sizing to protect your capital.

Stop Loss Level

Setting an appropriate Stop Loss level is crucial. If a Stop Loss is placed too close to an entry, normal market volatility may trigger it. If set too far from an entry, significant losses may result. Consider the following when setting Stop Loss levels:

• Volatility - wide stop losses may prevent triggering stop orders prematurely in volatile markets.

• Technical Analysis - Placing stop losses beyond significant price levels like support, resistance, or key Fibonacci levels may prevent triggering stop orders prematurely or falling prey to stop hunts.

• Risk Tolerance - set stop losses to limit potential losses to match your risk tolerance.

• Trading Strategy - tight stop losses may suit short-term strategies, whereas wide stops may suit long-term trading.

• Position Size - larger positions may require wider stop losses to handle market fluctuations.

• Risk-to-Reward Ratio - stops may be set according to a predetermined risk-to-reward ratio.

• Macro Trend - when trading with the macro trend, wider stop losses may be beneficial to keep positions open longer. Conversely, when trading against the macro trend tight stop losses may be beneficial.

• Psychology - Stop Losses help to maintain discipline and avoid emotional decisions.

Stop Loss, Position Size, and Risk Tolerance

It is essential to consider the maximum account loss if a Stop Loss is triggered. The Position Calculator can determine Leverage, Position Size, and Stop Loss values that align with your risk tolerance.

Limit Stops and Market Stops

A Limit Stop order becomes active once the trigger price is reached or exceeded. However, a limit order may not fill if the price changes rapidly or insufficient liquidity exists on the exchange. A limit order guarantees price, not execution.

A Market Stop order becomes active once the trigger price is reached or exceeded. It will fill regardless of price volatility but not necessarily at the trigger price. A market order guarantees execution, not price. When bot trading, traders often pair a Limit Stop on an exchange with a Market Stop triggered by a TradingView alert. The Limit Stop typically fills first, but if volatility or low liquidity prevents this, the Market Stop guarantees execution.

Backtesting Strategies Including Stop Loss Settings

Stop Loss and other Risk Management Elements are reflected in profitability data displayed in the Strategy Tester Panel but not the Lendal Pro Trader Calculations Table. Check the Calculations Table Comparison section for details.

Stop Loss settings are global and can powerfully affect strategy performance. Deactivating Risk Management Elements may simplify the initial stages of Strategy Optimization. This is especially important when Isolating Factions for optimization.

Stop Loss Settings

Stop Loss [BULL]

Sets the stop loss amount on a bull trend as a percentage or an absolute quantity of the Initial Capital (account size) specified in the Properties Settings.

Setting an appropriate Stop Loss is crucial for proper risk management. See the Stop Loss Level and Stop Loss, Position Size, and Risk Tolerance sections for important considerations when determining where to place a Stop Loss.

In a macro bull trend, setting a higher Stop Loss [BULL] value may be appropriate to ensure long positions stay open. Conversely, in a macro bear trend, setting a lower value may be appropriate for long positions.

Stop Loss [BULL] settings will be reflected in profitability data displayed in the Strategy Tester Panel but not the Pro Trader Calculations Table. Check the Lendal Pro Tester Comparison section for more details.

Stop Loss [BEAR]

Sets the stop loss amount on a bear trend as a percentage or an absolute quantity of the Initial Capital (account size) specified in the Properties Settings.

Setting an appropriate Stop Loss is crucial for proper risk management. See the Stop Loss Level and Stop Loss, Position Size, and Risk Tolerance sections for important considerations when determining where to place a Stop Loss.

In a macro bear trend, setting a higher Stop Loss [BEAR] value may be appropriate to ensure short positions stay open. Conversely, in a macro bull trend, setting a lower value may be appropriate for short positions.

Stop Loss [BEAR] settings will be reflected in profitability data displayed in the Strategy Tester Panel but not the Pro Trader Calculations Table. Check the Lendal Pro Tester Comparison section for more details.

Stop Loss signals can be automated to execute Limit Stops or Market Stops on an exchange. Each has specific implications. See the Limit Stops and Market Stops section for details.

Enable Stop Loss

Activates the Stop Loss function.

Deactivating Risk Management Settings may prove useful during Strategy Optimization.