To be honest, you can run stops at any percentage level you want. My research, though, suggests that 25% is a palatably wide “band” that protects our money while also preventing us from getting bounced out of trades prematurely by normal volatility.
Here’s the key… When a trade really begins to run, volatility tends to quiet down. Most people think of volatility as it relates to the downside, but in reality, volatility has a close relationship to upward price movement, too. What I mean by this is that the faster and more easily price moves, the lower the volatility signature of most financial instruments – in this case YCS. That, in turn, translates to tighter stops and, of course, higher potential profits.
As for 10%, I get that question a lot. Many people simply find 10% to be psychologically more palatable. But there is a wrinkle.
Stops that are too tight frequently result in traders getting bounced out of otherwise solid trades prematurely. So you’ve got to have a handle on how, when, and under what conditions you’ll reenter the trade if you want back in.
Most people think they have this covered but in reality it’s a lot harder than you would think, even for professionals. So I stick with what I believe would be the best for thousands of subscribers (based on their constant feedback over the years).