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Tight Stops can give false comfort
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Tight Stops can give false comfort

  #21 (permalink)
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Surly View Post
I've heard people say this before as well and I've actually never understood it. I wonder if there is any statistical/mathematical argument that can distinguish between entry optimization vs. exit optimization? To me, entries and exits are simply adjustments in your relative exposure - an "exit" is simply an "entry" into a flat position. Whereas an "entry" is simply an "exit" from a flat position.

I'm curious to hear more about this.

That's what I was thinking. How can they be different? One trader's exit is another trader's entry.

For me I guess I'm part of the minority. I've found with my strategy, exits are easier. That doesn't mean
that I maximize every single trade but I hit my targets that I've defined in my plan and move on.
My strategy focuses on low risk entries. My stop is placed accordingly.

Also, my stop depends on my strategy. In a trending market that is imbalanced my stop is much wider than
in a rotating market that is finding balance. I'm pretty good at fading the market with a tight stop
in a ranging market.

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  #22 (permalink)
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Personally, all my stops are mental stops, unless I step away from the computer. Try to find my stops - you won't! but, I'll find your stops if you place them at obvious levels, and I'll be more than happy to take the other side of them!

Do you mean you don't have a stop order in, and exit yourself manually?

In certain markets like FDAX, it can move 100 ticks or more in a matter of seconds. Which would cause large damage to anyones PnL if they did not have a stop in place, and even with a stop the slippage would be pretty nasty. (I think the FDAX is the most volatile of any instrument I have encountered)

Do you avoid these types of markets?

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  #23 (permalink)
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Twiddle View Post
Do you mean you don't have a stop order in, and exit yourself manually?

In certain markets like FDAX, it can move 100 ticks or more in a matter of seconds. Which would cause large damage to anyones PnL if they did not have a stop in place, and even with a stop the slippage would be pretty nasty. (I think the FDAX is the most volatile of any instrument I have encountered)

Do you avoid these types of markets?


Yes, yes, and yes.

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  #24 (permalink)
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Twiddle View Post
Do you mean you don't have a stop order in, and exit yourself manually?

In certain markets like FDAX, it can move 100 ticks or more in a matter of seconds. Which would cause large damage to anyones PnL if they did not have a stop in place, and even with a stop the slippage would be pretty nasty. (I think the FDAX is the most volatile of any instrument I have encountered)

Do you avoid these types of markets?

Interesting....I though I was the only one using mental stops, I have the same exact answer as tigertrader on the stop issue. It's actually quite rare that I pay a price for it..and the couple of times it's happened I got it back usually the same day. If other people ask me I tell them to use stops however...I think when you get enough experience and know what's going on you can use mental stops. At some point with enough trades under your belt you know if a trade is worth cutting short or letting run. Some one with limited experience might not recognize that they are on the wrong side and it could wipe them out, so until they know these things they should have a hard stop somewhere.

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  #25 (permalink)
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Basically, I get out my longs, at-the-market, when I don't want to be long anymore and cover my shorts, at-the-market" when I don't want to be short anymore. This is of course, executed within the parameters of a sound money management/ position sizing framework. I will physically place stops orders in the market that are not protective, for obvious reasons. But I will probably be "goosing" the market with market orders when the stops are elected.

Beginning traders should look at this statement and realize that not having a close protective stop and using an at the market order to close a position is the same as having a stop order to close to an entry, unless you are using a stop limit order then the stop order is a market order to exit the position so you are doing the same as tigertrader.

As I have stated using a critical stop is the only way to go and with the use of a DOM a simple click on your close button is exactly the same.

Learn to manually manage your trades around the volatility of the market you are trading. Before you trade a market you should spend weeks or months learning its ebb and flow, so you will know when it is time to exit a losing position with price telling you this and not a predetermined stop loss.

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  #26 (permalink)
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The first rule of the market order stop is we don't talk about the market order stop
Th second rule is...

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  #27 (permalink)
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Ok, I'm gonna throw a wrench in this large stop love fest. You have to qualify your statements with the style of trading you do, and what generally works for that style. I have traded the CL every day with a fixed 4 tick stop fixed 8 tick target. Yes, in this approach the entry is absolutely paramount. I don't believe stops should ever be chosen arbitrarily, they should be chosen based on market principles. My stops can be 4 ticks because I am trading the peaks of small swings. If I am entering at the close of the 4 range bar at the apex of a swing that will move 12 ticks, then with a target of 8 ticks, there is no reason for my stop to be much greater then the size of the 4 tick range bar that I am getting in on.

The notion that a 10 tick stop is too small for CL is outrageous if your trading style does not require it. If you need the market to move 30 ticks to get a 2:1 trade, then yes your stop has to be 15 ticks, but not if you only need 8 ticks for a 2:1 trade. I know my trading style is in the minority, but it proves that the generalized statements about stops do not always hold true, it all depends on your trading method.


Last edited by monpere; August 4th, 2011 at 05:04 AM.
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  #28 (permalink)
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monpere View Post
Ok, I'm gonna throw a wrench in this large stop love fest. You have to qualify your statements with the style of trading you do, and what generally works for that style. I have traded the CL every day with a fixed 4 tick stop fixed 8 tick target. Yes, in this approach the entry is absolutely paramount. I don't believe stops should ever be chosen arbitrarily, they should be chosen based on market principles. My stops can be 4 ticks because I am trading the peaks of small swings. If I am entering at the close of the 4 range bar at the apex of a swing that will move 12 ticks, then with a target of 8 ticks, there is no reason for my stop to be much greater then the size of the 4 tick range bar that I am getting in on.

The notion that a 10 tick stop is too small for CL is outrageous if your trading style does not require it. If you need the market to move 30 ticks to get a 2:1 trade, then yes your stop has to be 15 ticks, but not if you only need 8 ticks for a 2:1 trade. I know my trading style is in the minority, but it proves that the generalized statements about stops do not always hold true, it all depends on your trading method.

I agree. But there are not that many scalpers left... If you have an approach that works for you, that's great. I doubt many are able to trade CL with 4 ticks stop, and over time I find it hard to believe one would be able to pinpoint an entry that precisely, even with such small targets... But if you do, that is quite remarkable!

CL has countless gyrations of 40 ticks or more, it usually has a 100-tick move or two. It has limited liquidity and slippage can be a problem, so it makes sense to go for larger targets and ride the waves you can. I would argue that you are leaving way to much money on the table.... I'd rather take fewer trades with larger targets, I prefer to lean back while trading...

Can I ask how many trades you have a day? And your win rate?

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  #29 (permalink)
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What's wrong is, you are doing what everyone else is doing. It's obvious, and professional traders take advantage of this fact - so do the algos. A lot of the passive algorithms are programmed to take advantage of these tendencies by selling the new highs and buying the new lows. How many times have you been stopped out, only to have the trade turn around and go back in your favor?

You must have read me wrong or Algos must be poorly designed as i do not get stopped out that often specially if my position is backed by volume at price or a nice balance area. My stop on the ES is no more than 1.5/2 points, Nasdaq no more than 2/3 points and TF around 6/12 ticks. I trade in that range for my stop losses.

So i repeat my question, we are in a down trending market, price bounce off a MA which has been holding quite well. I place my stop above the swing that just kissed that MA. What the hell is wrong with that (see chart) ?

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  #30 (permalink)
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trendisyourfriend View Post
You must have read me wrong or Algos must be poorly designed as i do not get stopped out that often specially if my position is backed by volume at price or a nice balance area. My stop on the ES is no more than 1.5/2 points, Nasdaq no more than 2/3 points and TF around 6/12 ticks. I trade in that range for my stop losses.

So i repeat my question, we are in a down trending market, price bounce off a MA which has been holding quite well. I place my stop above the swing that just kissed that MA. What the hell is wrong with that (see chart) ?

That looks like the perfect entry and stop placement to me, why would anyone need a 20 tick stop for that kind of trade? If you have a good entry method, you can have a tiny stop.

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