A 2 pip stop with a 1 pip spread is a trade that starts half-dead. The spread alone consumes half the room, and normal noise handles the rest.
Think of the stop as having two parts: the cost of getting in, which is the spread, and the actual room for price to be wrong. On a 5 pip stop with a 0.5 pip spread, the room is 4.5 pips. On a 2 pip stop with the same spread, it's 1.5, a third as much.
Stops that are too tight relative to cost and noise produce a long string of small losses and a win rate that collapses. The strategy seems to fail, but the real problem is geometry.
A rule of thumb used by some scalpers: stop distance at least ten times the spread, and at least equal to a typical wick length for the timeframe.
What's the current ratio of stop distance to spread, and has widening the stop ever improved results?
Stop distance versus spread: the ratio that decides survival
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Shadow Trader
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