Been trading futures for about 5 years now- but still learning everyday and always trying to improve. I have conflicting feelings about stop loss orders and I wanted to hear your thoughts.
A bit of color on me-
I have a smaller account
I trade 1-2 cars
I trade signals from hourly down to 10 minute charts
I typically don't hold long (a few days at most usually- frequently just a daytrade)
My stoplosses are usually only set for a $200-$300 loss
I have had some nice success however sometimes I feel like my own stops are doing me in because I place it in the "obvious place"
It seems to me that before a meaningful move the computers go stop-hunting and try to shake as many people out before the larger move unfolds- (granted my stops are tighter than some of you bigger players out there)
Due to the leverage in futures I imagine a lot of smaller traders (like myself) place there stops in predictable areas that are easily hit- I have noticed a few fast pops that take me out then rip back up only to have my initial trade idea unfold successfully.
So this may be a silly question, but can the computers/algos/robots whatever see my stop orders and are they programmed to stop-hunt-- maybe nobody knows but sometimes it appears that way to me.
I used to get filled and immediately set my stoploss order- I felt that was the responsible thing to do, given the leverage and having a smaller account- but lately I have been toying with not setting a stop and just watching it more or using alerts- or accepting a risk tolerance meant for a larger account and taking quality signals.
I have worked a lot to improve entries that result in my stop being in less obvious places, or to wait for a flush in the opposite direction of my bias to create a position into (trying to get in where the sheep are getting slaughtered out)
What are your feelings regarding algos stophunting before a move and techniques for a smaller account to be responsible but not shoot yourself in the foot.
Last edited by TrendTrade; December 3rd, 2014 at 11:43 PM.
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you only give the barest of information on your trades. It is not a trivial question btw.
I don't trade futures it is equities I do but I don't use stop-loss or limit stop loss to protect myself... I am reasonably confident (you cannot be 100% sure) that when I buy that the price will go the way I want it. I set a "mental" stop - loss if the unforeseen happens and will issue an order to sell if it does.
I do use a LIMIT Stop Loss when I have made a decision to sell though. Let us say I have made a decent profit or the stock is falling but there is a chance of recovery.
In the latter I will determine the next support level and set the Limit Stop-loss just below that support level. Eg. If the support is at $1.00 then I will set the limit stop loss range at $0.96- 0.98... the idea there is often there will be a rebound off a support and rise again and I don't want a spike to trip the sell...but if it plummets through that range without selling then instead of issuing a market order to sell it will not issue the order and I can make the decision to sell myself (usually there will be a recovery after a spike....I should get a better price than near the bottom of the spike)
If I have a nice profit the limit stop-loss will grab a profit if the price goes down.... I use this order to take the emotion out of selling and give the price a chance to rise higher....if it does I will raise the limit stop loss accordingly
In both cases, I have decided to sell BUT allowed for the price to rise and giving me a better price.
now in your case I wonder about your stop-loss setting.... what percentage of the total order does $200-$300 loss represent? Normally one would set it at something like a 5% - 7% loss of your buy-in.
What is the normal fluctuation in the price? Let us say that in a day the price could vary up/down by 1-2% and this represents your $200 - $300 loss if the Stop loss trips the sale then you may be setting it too tight.
It may be that you need to develop better ways of identifying an opportunity so that the risk of a negative result is reduced.
I don't think removing the stop-loss is the answer if you are unsure about your entry position. Rather backing it off a bit to 5%. My impression of these stop loss "hunters" is that they are more prevalent on thinly traded vehicles... if there is lots of volume they won't work as there won't be a lull in the trading to allow them to drive the price downward to trip stop losses .
That is my opinion on the subject...again my trading is in long equities but I think the basic principles apply elsewhere...
No they can not see your stop orders - in fact in many cases your stop order isn't even held at the exchange but at your broker - but as you say "smaller traders place there stops in predictable areas" (a lot of people put stops 1 tick above previous highs and 1 tick below previous lows) so yes it's very easy for traders and/or computers to "stop-hunt".
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Does your philosophy stay the same regardless of whether you are really trading or simply fantasizing? I mean, considering that $100,000 is "trivial" money to you -- I assume that there is no difference of philosophy? But you never know when it comes to live action, do you? Some people have been known to be very "adequate" in their own fantasies --- yet become totally "soft" when the real action starts. (Porsche owners definitely to mind here)
the only fantasy in my discussions are the components of the portfolio on this website. I practice what I preach... I assure you. The transactions and the reasons behind them are typical of what I do in real life.
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Even if they can, and my (retail) stops get killed as a result of what they did, it's just collateral damage.
personally, changing/tweaking my stop rules will force me to discard my current trading approach ...
I don't use stop loss orders in the market, only mental stop loss orders. That said I trade on a very small time frame and don't hold overnight or through the news. The only exception is when I place a stop loss order if I need to go to the restroom or to take care of something.
Stop loss orders make no sense to me. Yes there's a point where I'm wrong on a trade, but I have to see how it trades there. It might hit my stop and only 20 contracts trade and it's clear that there's no more conviction against me. I'm not going to get out at that point. That would be dumb. The market is giving me a tell. Sure I might risk another tick if I'm wrong, but it's important to me to see what the auction is telling me.
I do use a protection stop both with my broker and in my platform. This stop is far outside of what I would use to determine where I'm wrong on a trade. It's there to protect me in case something goes haywire or if I go haywire.
Algos are not stop hunting and neither are locals. You have to lose that mentality; it's not productive. If you place a stop at a defined area of "support" or "resistance" it's going to get tested. Support or resistance areas are there because they are rejection areas; rejection of value. Those areas will be tested and that means they will attempt to run through those areas.
If you opened a doughnuts business and you made 100 doughnuts on the first day and you were sold out of doughnuts by 10AM the next day you'd make more doughnuts . You'd continue to make more doughnuts as you could. By the end of the first week you're making 1,000 doughnuts per day and you have exceeded your capacity to make doughnuts. Fortunately for you your doughnuts are all being purchased before the end of your work day and you're left with customers wanting doughnuts and no doughnuts to offer. You decide you need to increase your price of your doughnuts . You start increasing your price day after day and eventually one day you end your work day with an extra 50 doughnuts that go to waste . Your doughnut stop just got run. Sorry. It's how markets work.
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1) If you don't place stoploss orders, you are not managing risk.
2) If you are not managing risk, it may be possible to succeed in the short term, but you cannot succeed in the long term.
3) Your stoploss along with your % risked per trade is how you should be determining how much leverage to use.
4) The best way to set your stoploss is to backtest your strategy with different stoplosses to see how your system performs with different stoplosses. However, this introduces its own problems, and you may not have access to backtesting tools. In this casem you should be setting your stoploss based on the price variability of the instrument you are trading.
5) Having your stoploss orders triggered is normal. If your stoplosses never get triggered, you are setting them too far away.
Hope this helps. Best of luck.
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