Stop/Loss Risk Management Strategy

After the market opened this morning I placed a trade correctly anticipating that the market was going to climb, however I messed up and set the stop/loss order too close and it was caught before the prices could rise to where they would have been profitable!

So I decided that I needed to learn if there were industry accepted levels that are best to set stop/loss orders as well as limit profit orders. This is what I found.

As a general rule of thumb, traders should set stop/loss orders closer to the opening price than limit orders. If this rule is followed, a trader needs to be right less than 50% of the time to be profitable. For example, a trader that uses a 30 pip stop/loss and 100-pip limit orders, needs only to be right 1/3 of the time to make a profit. Where the trader places the stop and limit will depend on how risk-adverse he is. Stop/loss orders should not be so tight that normal market volatility triggers the order. Similarly, limit orders should reflect a realistic expectation of gains based on the market's trading activity and the length of time one wants to hold the position. In initially setting up and establishing the trade, the trader should look to change the stop loss and set it at a rate in the 'middle ground' where they are not overexposed to the trade, and at the same time, not too close to the market. 

I was already setting it up similar to this, though I think I was setting it a bit too close with generally about 10-15 pips to my stop/loss order and around 20-25 to my limit. I think I need to aim a little higher and increase my loss threshold a little and I will see how it goes.

Next on my list of things to learn: How to trade the start of the new week when there isn't much history because of the weekend break. 

Related

1. Easy Come, Easy Go... the story of my trading life
2. My Current Status
3. Money Management
4. Finished reading the candlestick book
5. Good System to Profiting?

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