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	Quote:	bln
	Hello, I'm looking tips on good stop loss / profit taking methods for Intermediate Term trading (1-9 month market trends). I looking for something thats not too tight stoping me out of the trade too early or too loose giving back too much gains. I trade the S&P 500 index.

Setting stop losses and profit targets are arguably the most diffcult aspects of trading. Here are some ideas that I use in my trading (in no particular order)...

Setting Stop Losses

• If you want to use the same stop loss for every trade, you can use an Average True Range (ATR) function in the timeframe you are trading. For example, if you trade off of a 5 minute chart, you can calculate 2.5 times of a 10 period ATR and use that as your initial stop loss. You can choose a multiplier of 2 to 3. Once you're in a trade you should manage your stops, but don't be too aggressive in moving your stop too close or to breakeven too quickly or you will be stopped out most of the time trading the ES just to then see it move in your favor. Give your trade space to move. Most traders seldom catch the high/low tick of a swing before the market starts moving in their favor. Personally, I use a 3 point stop most of the time (see bullet below of more details).
  
• Another approach I use is to review all of my recent trades for the year and determine what the optimal stop for my trading should be. For example, thus far, I have placed 225 trades and my maximum 3 pt stop has been hit 5 times. When my maximum stop has been hit, those were times that my trade decision was just wrong, and the trade never went "in the green" for me. In other words, I am suggesting you consider the Maximum Adverse Excursion (MAE) of your previous trades. This is my rationale for mostly using an initial 3 point stop. Note that I've been stopped out for 3 pts only 5 times because I "work" my stops once I'm in the trade. I use an initial stop because I want to give the trade room to move since I seldom catch the last tick before the trade goes in my direction.
  
• You can set a protective stop loss based on market structure. That is, place your stop where the market would prove you wrong should it go there. If that requires a stop too far away with respect to your risk parameters, than wait until the market trades closer to that location or "pass" on the trade. Without details of your trading methodology, I can't really say more about this.
  
• Some traders use a fixed stop based on a percentage of their account balance. Some traders think that they can trade, let's say, 2 ES contracts with a 4 point stop or 4 ES contracts with a 2 point stop because $400 is 2% of their account balance. Bad idea! I would highly discourage anyone from using this method.

Setting Profit Targets

• I like to scale out of my trades using 3 units, where a unit is X contracts. Again, I studied my previous trades and evaluated the trade potential of each trade even if I did not capture the bulk of the move. What I am suggesting here is that you evaluate the Maximum Favorable Excursion (MFE) of your previous trades to identify the profit targets of your first two units. For the last unit, I would let the profits run, but I usually set a profit target based on market structure (or tighten my stop as price moves toward my profit target). Letting your profits run on your last unit is critical to long-term success if you plan to scale out. Otherwise, it would be difficult to do better than breakeven over the long-term. Scaling out will definitely raise your win/loss ratio and confidence significantly, but do not overemaphasize this because what really is important to survival is your profit factor. For example, based on research of my trading, I try to scale out my first 2 units at 2 points and let my third unit run based on a profit target that is usually much greater than 3 points (my intial stop). But what if I don't let my third unit run and instead close out my whole position at 2 points, that's $300, not bad. But what if I get stopped out at my maximum stop loss, that's $450, not to mention that I can have multiple, consecutive losing trades stop me out at 3 pts. There are a lot of variations, but I think you get the idea for my rationale of letting the third unit run. The bulk of your profits will usually come from a few really good trades. By the way, I tend to move my initial stop loss up modestly as the position moves in my favor. I move my stop to breakeven + 1 tick when the trade moves 3 to 4 points in my favor.
• Ultimately, here is where I am trying to go... I want to scale out of my trades based on support/resistance levels in the market. For example, if my S/R level is 5 points away, then that's where I want to start scaling out and hold until we reach the next S/R level. But right now, I feel that scaling out as described above is appropriate for me as a fairly new trader. As my trading and confidence improves, I will continue to refine my profit target method. There is a lot of emotions and mental stuff that makes it difficult to hold on to a full trade for so long, but this is where I strive to be soon. For me, experiencing an adverse move against my position after I have been up many points is difficult for me to handle.

Regarding reviewing your previous trades, combined order execution and charting software platforms, like TradeStation and NinjaTrader, will log all of your trades on the chart so you can review them later. For me, logging trader performance statistics and executed trades in my trading platform is a very important feature. I spend a lot of time in this area because the insight I gain from it usually affects my bottom line. Anyway, I hope this helps.