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Stop loss (SL) management is one of the most debated topics in trading circles—and for good reason. It’s a critical skill that can make or break your profitability. Despite having written about this before, it’s still a hot topic in our trading group, with differing views on how best to manage SL once a trade is open.

RR-Based Stop Loss Management: Popular but Imperfect
Many traders use Risk-Reward (RR) ratios to decide when to move their SL to break even (BE). It’s simple: once a trade reaches a certain multiple of risk (e.g., 2R, 4R), they shift the SL to BE or BE+. But simplicity doesn’t always mean effectiveness.

Using my EA—simply called “Bot”—I ran extensive backtests from late September 2023. Every trade was based on a fixed £10,000 account size with 1% risk, to avoid skewing results from compounding. Here’s what the data revealed: -

Key takeaway: 4R was the most effective RR trigger for moving SL to BE. Using 2R, as some traders prefer, underperformed.

For comparison, these are the results when compounding profits: -

If your focus is on reducing DD, then a lower RR trigger will be best.  If profit is your goal, use 3.5 or 4R.

ADR-Based SL Management: A Viable Alternative
Another option is using the Average Daily Range (ADR) - (bearing in mind that we’re taking trades on the M1 time frame here – ADR wouldn’t work so well if trading on the H1 time frame). The results are as follows (again using a 10k a/c size for each trade at 1% risk). In this case, we’d move the stop when price has moved x% of the ADR – I’ve worked with multiples of 5 for this test, but could fine tune that with increments of 1%, if time permitted.

Final Thoughts: Logic Over Rigidity
Stop loss management works best when it’s logical—not rigid. RR-based rules are easy to implement, but they lack nuance. Elliott Wave offers more flexibility and alignment with price action; hence I always prefer to use the basic Elliott Wave rules.

If you’re set on using RR, go with 4R—not 2R. But, if you’ve done your homework and identified high-probability price magnets for your take profit level, a set-and-forget strategy might outperform active management in the long run.  After all, trade management is one of the hardest aspects of trading to master.

For more on this topic, see my earlier post: They Love My Stops.