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Hard Stop Placement – The Great Contradiction?
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Hard Stop Placement – The Great Contradiction?

  #11 (permalink)
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I think there are many factors that go into stop placement at least for me personally. Point where wrong about trade (that is kind of a subjective term but got to know when to fold'em is a valid criteris), ratio of stop to target, % risk to amount of overall capital, what kind of draw downs does a particular static stop create on overall system.

For me static hard stop is very important. I would not classify it as emergency stop although it is a backstop if something went out of control in market. It is really is a function of setting up probabilities as a system trader.

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Last edited by liquidcci; February 14th, 2012 at 11:58 AM.
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  #12 (permalink)
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clclcl View Post
Hard Stop Placement – The Great Contradiction?

...YET – we are ALSO told by Pros – NEVER let price hit your hard stop but ‘manage the trade” – and get out sooner – at something far less than the “hard stop”. Again – “NEVER let it hit the stop you just placed at the most recent swing high or closest support level or channel line, or any place else your system "rule" told you to place it.”

So…won’t this result in premature exits? After all, if we never let it hit the hard stop, we are never giving the trade “the room it needs to go through it’s ups and downs”...

The above quote is usually spoken by a "veteran trader" that's recommending that a trader needs to get to the point where he/she has learned enough about the price action or have enough trading experience to be able to determine that the trade will not succeed or continue in their favor prior to the stop (initial stop/loss or profitable trail stop) being hit.

Basically you have a situation where these types of traders are adjusting their stops (making it smaller) during an open trade or will use a mental stop to market out of the trade even though there was an existing hard stop. This type of adaptive stop management is very difficult for newbies or beginner traders to perform while less difficult for "veteran traders". Yet, there's the argument that if you're going to adapt (change or adjust) your stop after a trade entry...shouldn't the adapted stop have been your initial stop in the first place ?

The purpose for using adaptive stop management is due to the fact that the price action will change after entry in comparison to your price action analysis prior to entry. Therefore, if you have a strong understanding of the price action you're trading...in theory you should be able to adapt your trade management after entry instead of placing a stop and doing nothing as if the price action will not change after entry and following the path of your initial price action anlaysis.

My recommendation is to not widen your stop after the initial stop/loss placement under the facade you'll have "more wiggle room". Instead, if you know enough about the price action you're trading...you won't have any problems in doing a re-entry trade if you're stop is hit and then the price reverses to go back in the direction you wanted it to go.

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Thanks to everyone

I will copy and paste all of your thoughts and opinions in my "cookbook", re-read, sort through and internalize them.

Again, thanks for your contributions - both philosophical and specific.

I hope that I can return the favor one day and more importantly, that your year is profitable and fulfilling. (I need the same!)

Take care.

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  #14 (permalink)
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As suggested, here is a new poll regarding hard stops:

Regarding stop placement ...

Total votes: 845

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  #15 (permalink)
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Don't be stupid

It's always best to use a hard stop where the trade would be wrong. Last night I shorted eur/usd and came against me after I entered my last scale in. I felt like moving the stop but I didn't because I knew at that point the trade was invalid. If I did anything else I would have lost more money.

Sometimes If there happens to be some event or news that comes out it's best to get out of the market regardless where your stop is unless price is going your way.

I don't understand why people don't use stop losses, hedges, or discretionary stops. I know one guy who is convinced he can just average down into oblivion and so far he's doing okay but you know it's a recipe for disaster when something unforeseen happens. I'd also advise to use a disaster stop if you're using a discretionary stop for the same reason.

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  #16 (permalink)
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I will always use a hard stop.

There are many good reasons for the other choices, and I have read them posted on futures.io (formerly BMT) by good traders. However, for me it's simple: I want to reduce the amount of thinking I have to do once I'm in a trade. The more attention I need to spare for managing the trade, the worse the outcomes tend to be, frankly.

Ideally, except perhaps for a rather large disaster stop, probably it would be better to just manage the trade 100% correctly, making decisions to close, or scale in or out, based on one's flawlessly accurate read of the market. But my read of the market tends to go into the trash can when I'm trying to manage a losing trade, so I prefer to just not do it.

I know some people can do it -- fine. I prefer to put my energy and attention on trade location and execution, and just let the stop take me out if it's hit. It's just simplification of what I need to deal with.

But I don't think this is the only way to go for everyone.... What works will be different for different people.


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  #17 (permalink)
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When I decide to enter a trade, it usually consist of between entries over a range of prices so a fixed number of ticks for a stop would not work for me

I decide my stop based on my records of my daily trades

- how much I make on each successful DAY (notice it is not per trade)
- what is the number of ticks against my average prices ( I look at the amount actually) I usually have to take before the price move in my favor
- % of profitable days/trades

After I kept a record of these information, it became clear and evident what kind of stop and the stop amount I should have in the way I trade

These records tell me; the stop amount I should have to protect my account yet keep me in a trade and not get out of a possible profitable trade

Last edited by jonc; November 1st, 2014 at 04:57 AM.
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  #18 (permalink)
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I use always a hard stop BECAUSE I am away from screen...

Hard stops are an important part of the money management.
The best stop is the one which is not used - so place it wisely.
Most of the traders are doing extensive backtests about their
system: But the importance of stop optimizing is rarely seen.


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Stop is for emergency/safety if market goes crazy

My stop is an "emergecy" stop. I do not wait to see it get hit if things are going wrong. When I am wrong I get out. Having been trading for a few years now, I know first hand how the the market can do very strange things - Ie the flash crash - remember well watching that drop occur.

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  #20 (permalink)
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when a stop loss order can be harmful

tulanch View Post
My stop is an "emergecy" stop. I do not wait to see it get hit if things are going wrong. When I am wrong I get out. Having been trading for a few years now, I know first hand how the the market can do very strange things - Ie the flash crash - remember well watching that drop occur.

the flash crash is a good example when a stop loss order can do more damage than protection. if you had an "emergency" stop during the flash crash, it's very likely you got filled at or close to the bottom. and then you had to witness how the market recovered without you.

it's important to see the disadvantage as well

btw this is based on a stop loss order and not a stop limit order

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