Adrian Reid explains why tight stop-losses kill mean-reversion trading. The strategy needs many small 1R wins against occasional 5-6R losses, so a high win-rate is critical. Tight stops cut off trades before they rebound, tanking your win-rate and expectancy.
Mean reversion relies on a high win rate in order to give you positive expectancy. You get lots of small wins and the occasional large loss. You might have 9 1R gains and you might have 1 5 or 6R loss. So the gains are much smaller than the loss. Now, if you use a tight stop loss, what happens is some of those small gains will turn into losses because often they move against you before they bounce. If you've got a tight stop loss, when your trade moves against you, the stop loss is gonna take you out, lock in that loss, and then you've missed the bounce, which happens a day or two later. So tight stop losses are a real problem for mean reversion trading strategies. And if you wanna get around this, then I'd suggest you have a look at using much wider stop losses or, oh, heaven forbid, no stop loss at all. Be careful with that one though, because that can bite you in the ass as well. But a wide stop loss, loss might be something like 20 or 30 or 40% on a fairly volatile stock. So use wider stop losses and avoid this problem of your win rate dropping and your expectancy falling apart.
