You have asked very good question. I will answer your question in detail. When I started trading, I started with no stop loss. I made 100% return in one month. In my greed I opened a big trade. When the price turned against me I couldn't make the decision to close the trade as I hoped price will make a recovery. I waited but price didn't make a recovery. Loss kept on getting bigger. I didn't close the trade. I could have closed the trade but kept on watching and happily let the account blow out.
After pondering over my mistake, I decided to use a stop loss. I idea was to limit my loss to a certain level. Stop Loss will help me do that. I started trading with a 50 pip stop loss. I made a few good trades. Then I made a loss and that loss unnerved me. I kept on trading with a big position size. I should have reduced the position size. I looked at the charts, realized that 50 pips is a big stop loss I can easily trade with a 20 pip stop loss. I made a number of good trades.
But when I started losing, I realized I can easily trade with a 10 pip stop loss. This is how I learned over the years with experience that we can easily reduce the stop loss to as low as 5 pips. The trick is to use the concept of support and resistance and candles on higher timeframes like H6, H8, H12 and D1. You will lose with a 50 pip stop loss and you will lose with a 5-10 pip stop loss. The thing that is important is the Reward/Risk ratio and the winrate. If your Reward/Risk is 10:1 which you can easily achieve on H8, H12 and D1. Suppose our winrate is 50% and our stop loss is 10 pips and take profit is 100 pips. In 10 trades, we lose 5 trades meaning 50 pips and win 5 trades meaning 500 pips so we make 450 pips.
When you are trading with 50 lots it is a good idea to have a small stop loss. Either the trade will become profitable from the start or the stop loss will get hit and the trade will get closed. If you have a big stop loss the trade will linger on for hours and maybe a few days with no clear cut result.
Regarding your question if you start with $1000. First trade is very important. We will only risk 0.5% on this trade. We will use 0.1 lot and a stop loss of 5 pips. If we make 100 pips our account will become 1100. If we lose we lose $5 and we are going to reduce the risk to 0.25% meaning we will decrease the lot size to 0.05 and the stop loss will be 5 pips.
If we win we will make $50 and we can use this winning stake to increase our risk to 1% again. If we win again we will increase the risk to 2%. This is how we are going to grow our trading account. We are not rushing. If we win we increase the lot size and if we lose we decrease the lot size. You should know this fact that the stop loss is not guaranteed to work always. Watch the video below where I tell you why!
