As I promised, I have written a guide to help you find a stop loss position. This can be applied to ANY market. If you have trading software you probably won’t need this, but it’s good to know anyway. First lets talk about Stop Losses.
What is a Stop Loss position?
A stop loss position is basically where you draw the line when a trade goes against you. As a Trader, there has to be a point when you say “enough is enough”. Controlling your losses is a KEY SKILL to being successful. Hoping the price will come back, letting it go in play and good old fashioned “praying” are not good ways to approach a loss. Losses are inevitable. How you manage them will determine how successful you are as a trader.
What percentage should I aim for?
This is a loaded question really. It all depends on your strike rate and how successful your winning trades are. If the best you can hope for is 3 or 4 ticks profit and your strike rate is 50%. Having a stop loss of 6 ticks will see you lose. However, a strike rate of 70 % and an upside average of 10 ticks means a 3 or 4 tick stop loss sees you well in profit. For my racing Trades I have 2 stop loss percenatges. For the backs it is 20%, the Lays are 15%. The reason the Lay % is lower is down to tick size and the odds I am trading at. Let me give a couple of examples:
LAY @ 1.8: A 15% stop loss would be at 1.6. This gives 20 ticks movement in odds. Which is more than enough to see if your trade is going pear shaped. A 20 % loss moves the odds to 1.55. This is ridiculous. If we apply the same criteria to a Back trade:
BACK @ 4.6 a 20% stop loss is at 5.8 which is only 12 ticks. The ebb and flow of the market can move 5 or 6 ticks either way while a horse is still trending. A 15% stop loss moves the trigger to 5.4. This is as tight as I would want to go at this price.
As a general rule; The shorter the odds the tighter you can be with your Stop Loss. A find for the Racing Trades 20% for Backs and 15% for Lays works fine. On my match odds Football trades i give in my “inside track” bulletins. My stop loss is much tighter. 5 ticks maximum. This is because the nature of the SLOW moving market and much larger sums of money involved.
How to Calculate a Stop Loss position on a Back trade
How to Calculate a Stop Loss position For a Lay trade