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Hard Stop Placement – The Great Contradiction?


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Hard Stop Placement – The Great Contradiction?

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  #1 (permalink)
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Hard Stop Placement – The Great Contradiction?

Will a seasoned trader please…please advise here?

After 3 years of research and full time trading, I remain troubled (by apparently what continues to trouble even seasoned pros I am told).

Here’s the issue: We are told to set a hard stop, for example outside of a price channel or at a support level, etc. as a “hard stop. This is to supposedly allow the trade “enough room” to develop and prevent you from getting stopped out too soon.

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”.

What are we to do? Use the “set a stop just outside the price channel” or just above the last most recent swing high” etc etc OR – do something else?

And yes - someone might respond that - it's whatever you are comfortable with...or...you must always manage your trade (of course!)...or there are no hard and fast rules....

The BUT is that there are Pros who make this a hard and fast rule, yet the wisdom of each of these rules are OPPOSITE. Unless I am just missing something.

Any specifics and guidance would be greatly appreciated. Thanks for your time and wisdom.

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  #3 (permalink)
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Let me respond to your question and perhaps we can get some others involved in the discussion.

I'm going to assume you are a discretionary, chart trader. That's what I am and it is the context in which my comments should be understood.

What you call a "hard stop" is what I refer to as a "drop dead stop". This is the price point which, if hit, you are going to get out of the trade no matter what. No wishing, no hoping, no further hanging on, you are out of the trade period. This is one of the critical backstops that provide safety and freedom for your trading. There are a number of benefits to a drop dead stop, but I'll mention just one: You will never blow your account up if you always use (and honor) a drop dead stop. There is no excuse for not honoring a drop dead stop because, if reached, there is nothing left to think about, nothing to debate with yourself, you are out of the trade, period.

A drop dead stop is not the stop you place just below support, or just above a swing high, etc. It is an arbitrary stop that represents the most you are willing to lose on the trade in question. What amount is the most you are willing to lose on the trade in question? It depends. It depends on a lot of things peculiar to your particular style of trading and all of the relevant metrics you compile over time in regard to your trading success. Just one example would be that you might choose to calculate your drop dead stop as a percentage of the value of the stock you are trading, say 1%, or some variation thereof.

As an aside, if a trader is frequently hitting his/her drop dead stop and their account is being drawn down, then that trader has other issues with their strategies/and or methodologies that need to be addressed.

The drop dead stop is your ultimate safety boat, but nobody wants to have to use a safety boat very often. So, in managing your trade you want to be very sensitive to a variety of reference points that may lead you to exit the trade early - well before your drop dead. Also, you may set a much closer mental stop than your drop dead stop, a point at which you plan to exit the trade unless some other considerations lead you to believe that the trade deserves just a little more opportunity to develop.

Best,
Ged

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  #4 (permalink)
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I think Gedman has a good approach here.

I don't really understand the issue Clclcl. Who are these Pros you're talking about? The guys on tv who manage millions of dollars? Who cares you're not them. Maybe the guys who've authored a book but really might not have any practical experience with Live trading? Who cares - wouldn't want to be them.

Or is your issue that you keep getting stopped out before you make your target or the maximum ticks for that trade? If you're focused on making the maximum ticks possible for every trade it'll never work. Be happy with catching 20%-50% of any given move. That's a living.

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  #5 (permalink)
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Hi clclcl!
Great advice here (Gedman, Moneyhor) that is in line with pretty well everything i have read and more importantly experienced.
When ever i place a hard stop or "drop dead stop" as Gedman mentioned, it is primarily for the purpose of saving my account in case of a very fast unexpected move against my position or a major "event" that causes the mkt to collapse (if long) without giving me time to exit. My (electronically placed) hard stop hardly ever gets hit because i exit well before then.
For what its worth, like MoneyHor mentioned, you are your own person so is best to make it work for you.
This can be quite difficult initially because you want to take advice from proven so called "pros" and follow some rules but i strongly believe what ever it is you are studying you need to "make it your own".
I use the information I glean from books and sites like futures.io (formerly BMT) etc to form a framework for my own trading and weed out or change the things that dont work for me.
For me stops are my safety net and hardly ever get hit but it is one less thing I need to worry about = more mental ram and less emotional stress. IMO, the latter can blow up you account quicker than a mis placed stop.
Feel free anyone to critique the above.
Cheers and good luck!

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  #6 (permalink)
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Luscord, I certainly agree with you regarding the importance of a trader developing a trading plan that works for himself or herself. While there are general guidelines and concepts in many areas that have near universal application, how and if an individual trader works them into his plan is very personal. It has to do with having an intimate understanding, a 'feel', for what you are doing when trading. Most of us, being built quite distinctive in many ways from others, need to put our personal, foundational trading plan together through intense individual effort, i.e. immersion study and paper trading, followed by live trading when ready. We have to own it, inside and out.

This doesn't mean we can't learn from others. We must. But it is seldom a plug and play process.

Best,
Ged

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  #7 (permalink)
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clclcl View Post
Hard Stop Placement – The Great Contradiction?

Will a seasoned trader please…please advise here?

After 3 years of research and full time trading, I remain troubled (by apparently what continues to trouble even seasoned pros I am told).

Here’s the issue: We are told to set a hard stop, for example outside of a price channel or at a support level, etc. as a “hard stop. This is to supposedly allow the trade “enough room” to develop and prevent you from getting stopped out too soon.

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”.

What are we to do? Use the “set a stop just outside the price channel” or just above the last most recent swing high” etc etc OR – do something else?

And yes - someone might respond that - it's whatever you are comfortable with...or...you must always manage your trade (of course!)...or there are no hard and fast rules....

The BUT is that there are Pros who make this a hard and fast rule, yet the wisdom of each of these rules are OPPOSITE. Unless I am just missing something.

Any specifics and guidance would be greatly appreciated. Thanks for your time and wisdom.

Stop placements depend on what type of trading you're doing. Swing trading will require a big stop while intra-day trading requires a stop that is placed at a point that confirms your trade is invalid. It really depends on what you're looking to do. There's no one answer to your question. In addition to swing or intra-day trading, your stop may vary based on your trading method. BTW, swing high's and low's are just targets for professionals. But there's nothing wrong with being wrong on a trade. Anyone that tells you different doesn't trade for real.

The typical mistake a lot of new traders make is placing a stop that is within their own amount they can only risk vs. what makes sense for the particular market they're trading. Different markets have different volatility which requires different stop criteria. An example would be, a trader can only risk $100 per trade trying to trade CL which is based on their account equity risk while ignoring the market's vol. The market doesn't care about you. It will eat you alive. You may as well just take the money out of your account and have a Rodney Dangerfield night on the town handing out $20 bills to everyone you see. At least that would be more enjoyable than getting destroyed by a thousand stop outs. You need to adhere to the markets volatility that you're trading.

There's no magic number here obviously. Not sure what you're referring to as "pro" but many at a high level don't put a stop sitting in the market because their positions are huge. Could you imagine? Yeah, I'm long 4,000 ES contracts and I'm going to risk 2.50 points and just have that sitting in the order book, lol!

Just study the market you're trading and figure out what makes the most sense. Use a stop amount that confirms you were wrong while not trying to impose your will on the market.

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  #8 (permalink)
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clclcl View Post
...
Here’s the issue: We are told to set a hard stop, for example outside of a price channel or at a support level, etc. as a “hard stop. This is to supposedly allow the trade “enough room” to develop and prevent you from getting stopped out too soon.

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”.
...

Stop placement should have nothing to do with giving a trade room to move. If I put my stop at 0, that should be plenty of room to move for any long trade I take, but it's not realistic. A stop loss is the exact point at which the reasoning behind your trade is negated. In other words, the point at which, if the market moves there, the market will prove that your speculation was wrong. It doesn't matter if the market just hits that stop to the tick and turns around and goes straight to your target, frustrating, but your trade idea did not work. Move on to the next trade.

A disaster stop is totally different, it is there to protect your account against unexpected abnormal market behavior or trading event. Your disaster stop should never be hit within the normal market and trading. If a well placed disaster stop is hit, you should be in pain if it is due to an abnormal market event, but then again so will most everyone else in the market. It it is hit because you fell off your trading chair and couldn't get up, then you should be relieved... although you will still probably be in a different kind of pain

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  #9 (permalink)
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First - a thanks to all for their time and assistance. Generous of all of you.
I hear what you are all saying - the hard vs. other stop distinction, setting at my comfort level, setting where I am proven wrong, etc.
I am or may not be getting it though. one more try - then i will not bother any of you any more....
On my misuse of the term hard stop - got it. Let me get beyond that. My fault for not doing a better job of communicating.



1. Let's say i just use one stop. That stop will never more than I am willing to lose per trade - and that is 2% of my trading account per trade.

2. I also want that stop to keep me in the trade long enough to capture upside moves but keep my losses to an absolute minimum – that is, far LESS than the 2% per trade I am willing to risk.

3. I am told that the point at which I place the trade is where the market proves me wrong. But that point could be immediately when the action goes as little as 2 pips in the red – or even 1 pip for that matter. Right? So – do I exit then? At exactly the instant I am no longer in the black? Even 2 seconds into the trade (I trade on the M5)?

After all – I entered with the intent of making a profit, the market moved against me in these first 2 seconds, I am now down 2 pips – so why not get out right then and there?

4. The answer may be that there will always be noise – that takes my trade into the red over the course of several minutes, but ultimately that noise is shed – and the trade goes in the right direction.

5. So I guess the question is – how do I identify the “noise level” so I can put my stop right outside that noise, not ever letting the trade get close to my 2% loss max per trade, etc.?

6. Is it 1 ATR on average? Is it 2 ATR? Is it at the bottom of the price channel line?

7. I saw a vid of I believe it was Kathy Lien – and she said that after loads of research, they concluded that a stop of 2ATR is always a good rule to follow.

Am I making any sense? Am I missing all of your good points? Thanks again.

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Hi,


clclcl View Post
1. Let's say i just use one stop. That stop will never more than I am willing to lose per trade - and that is 2% of my trading account per trade.

2. I also want that stop to keep me in the trade long enough to capture upside moves but keep my losses to an absolute minimum – that is, far LESS than the 2% per trade I am willing to risk.

3. I am told that the point at which I place the trade is where the market proves me wrong. But that point could be immediately when the action goes as little as 2 pips in the red – or even 1 pip for that matter. Right? So – do I exit then? At exactly the instant I am no longer in the black? Even 2 seconds into the trade (I trade on the M5)?

After all – I entered with the intent of making a profit, the market moved against me in these first 2 seconds, I am now down 2 pips – so why not get out right then and there?

When you say "I place the stop where the market proves me wrong", IMO, it shall not mean "I place the stop where I am 2 pips in the red". It shall rather mean "I place the stop at a level which, if reached, proves that my reasoning to enter the trade was wrong".

For instance, let's suppose that, for a given reason, you enter LONG because you think that an uptrend is on-going. An up-trend is typically composed of Higher Highs (HH) and Higher Lows (HL). You may choose to place your stop a little below the most recent HL. Why? Because, if the price goes to that level, the chain HH-HL-HH-HL-... is broken, and this is not any more an uptrend (when using the above definition).

Of course, what I have just written is over-simplified, and I do not advise that you proceed like that each time. It is just an example.

I do not understand the combination of your items 1 and 2. If you are "ready" to lose 2% of your capital per trade, you could place the stop according to the price action as described above, then adjust the size of the position in order not to risk more than 2% of your capital:
(entry price - stop loss) * size of the position = 2% of the capital

In this case, it obviously means that, if the stop is hit, you lose 2% of your capital.

Nicolas

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  #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.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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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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  #13 (permalink)
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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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As suggested, here is a new poll regarding hard stops:

Regarding stop placement ...

Total votes: 845
 


Please vote and discuss.

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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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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

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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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  #19 (permalink)
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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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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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I am a rookie and most of the lessons that I have learned the hard way are related to stops.
Some of the lessons learned were the result of my bravado (ignorance).
Some were actually the result of following my rules. (discipline)
Now I am learning to manage fear and desire (psychology)

FIrst live trade ever. 9:30 a.m. opening bell. market moves up. I click BUY (market). 1 contract. ES. Naked. No stops. ...Or so I thought....
In mere seconds I see profits rise to $62.50 then back to $50. I exit. $38.50 profit minus brokers fee.
"WOW! I am going to be good at this" My adrenailine is pupming. Must have cigarrette.
GO outside. Smoke. Come back..."Whats this?? I am in a trade!?!? (didn't realize my platform had preset stops and the stop became a working order after i sold out of my long)
Luckily I am now up $100. Good ,but..."I'm not supposed to be in this trade!" Cancel. EXit. Get me out!
"WOW, I can do this."5 minutes of trading and I am up $100 dollars!
Leave my proverbial desk to go run errands. Return home. 2pm. Yellen speaks. Market rises. Once again, I break my initial rules. CLick BUY. (Market). Now up $185. "Yay!! I am awesome. I am going to quit my job. I should turn off my machine for the day!!(Take what the market gave me)" NOPE. I jumped back in. No set stops. Market reverses with a fury. I am using mental stops. I have a small account. THe pain is too much. I exit down $185 for the day. All this happens in a couple of minutes. "WTF!!"
Lesson for small account trader.....Thats me. Use stops you big dummy. The market has the potential to move faster than you can make descisions!

Lesson 2. Today I will recover my losses. Mmmm HMMMM...
Non farm payroll. 8:30am EST. Market rises sharply. CLick BUY Order is filled a second later but 8 points above intended entry. watch profits flash to $125 and then down to -$200. All of this in seconds. Lesson learned. Don't place market orders immediatley after a news release and USE STOPS! Especaillly with a small account!! Note: While sitting there scratching my head wondering WTF I watched the market move back in to what would have been profitable territory had i stayed in the trade. Salt on the wound.

Now these 2 days were complete rookie mistakes. But the thing is , I knew not to violate these rules. I read them. I took notes on them. THey were in my lists of rules. I had read a lot about managing risk. THe 2% rule. The 5% rule, always use STOPS. Guess all those lessons didn't register. Needed a wallop against my head to realize them.

I began to set my stops at 2%.
Result: Getting stopped out of trades that would have been good trades except for my shallow STOP LOSS.
Lesson Learned: If using shallow stops. Precise entry is crucial. Also in a fast moving market, like those after news releases, a STOP LIMIT can get jumped and a STOP MARKET can result in massive sllipage exceeding ones determined risk.

SO while I have learned lessons about using stops, and the need for precsicion while trading a small account, my new endeavor is getting a hold of my emotions and not being afraid to get back in after being stopped out when my initial idea turns out to be correct. But that is for another thread....

While I submit this for the experienced to laugh and reminence at (but I don't mind because in retro spect I think its funny also! LESSON: Don't be attached to my convictions when trading, accept that sometimes I will be wrong. My preset stop losses will determine this so i don't have to. And be able to laugh at my own follies) I also submit it for the rookies to learn from. Risk management is vital and STOPS are a huge part of RISk management.

Luckily I have not blown up my account...YET!I have been sitting on the sidelines and watching more than not..... I take the occasional scalp. I occasionally win and I occasionally lose. But most importantly I take trades at times when the risk of stop jumping and slippage is low and I always use preset stops. I intend to start a jounal on this forum whence I began to actively trade again so that I can be critiqued, and when warranted, lambasted, and get the occasional pat on the cyber back from the many seasoned and highly intelligent entities on this forum. ( Seriously, SOmetimes I have no idea what they are talking about LOL. Just goes right over my head) But seriously, THis forum is awesome. Reading the members journals and experiences have been invaluable to my learning! Thanks BM's!!

Last rule: THE MARKET WILL ALWAYS BE THERE. IF you don't believe that, your trading account will not.

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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

This is true and very important.

It's crucial to understand that a "disaster" or "emergency" stop will not always save you in a true emergency. Also, while a market stop loss would have acted exactly as described, a stop limit might not have gotten filled (probably would not -- who was buying?), and if the market had not bounced back as it did in the flash crash, it might not have helped you either.

Emergency stops are protection for "normal" emergencies, not true emergencies....

Is there a protection for true emergencies? Sure: don't be in the market when they happen. Oh, wait....

Bob.

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bobwest View Post
This is true and very important.

It's crucial to understand that a "disaster" or "emergency" stop will not always save you in a true emergency. Also, while a market stop loss would have acted exactly as described, a stop limit might not have gotten filled (probably would not -- who was buying?), and if the market had not bounced back as it did in the flash crash, it might not have helped you either.

Emergency stops are protection for "normal" emergencies, not true emergencies....

Is there a protection for true emergencies? Sure: don't be in the market when they happen. Oh, wait....

Bob.

yes, exactly

and now we can take it a step further. you don't use a stop loss. you just want to exit your long trade by using the "close or flat" button. with other words sell at the market. unfortunately the result would be probably very similar. again filled at or close to the bottom.

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Silvester17 View Post
yes, exactly

and now we can take it a step further. you don't use a stop loss. you just want to exit your long trade by using the "close or flat" button. with other words sell at the market. unfortunately the result would be probably very similar. again filled at or close to the bottom.

In the flash crash, or, in my opinion, in any other true emergency, there really was not anything you could have done, or could do.

Liquidity was almost nonexistent for the crash and the subsequent bounce. I remember frantically trying to get a fill on some index puts when I saw it starting, thinking I would clean up on the decline. I got a fill, all right, but it was during the big bounce up after the drop. During the entire decline I couldn't even get a quote. As the indices kept going up I was trapped in the puts, now frantically trying to sell them. Eventually, at a good loss, I did.

Nothing will work in a normal manner in a true emergency.

"Disaster" stops or "emergency" stops are for routine disasters, little drops caused by a bad report or something, not big ones....

Bob.

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Personally... I do believe in an Armageddon stop for the ES. You want something in place just in case something unexpected happens somewhere in the world.

How far away should it be? Depends upon volatility. Keep it outside the 0.01% near term probability area.

Also... The Flash crash wasn't all that hard to avoid. I was actually trading long side toward gap fill that morning, but a downtrend started to establish toward noon so I wasn't long into that event. It was a slow start to the downtrend after near gap fill, then it steadily accelerated lower faster and faster.

The funny part about October 15th was it raised the hair on the back of my neck because it was pretty much the same pattern as the Flash Crash.

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I think I am better off most of the time having a hard stop, if you want to get back into the trade, there's always another chance

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I never use resting/hard stop loss orders.

I have different strategies that use different stop loss methods

For mean reversion trades I check indicators or price levels for stops but only check and execute the stops after the bar closes. This prevents me from getting out of trades that initially go against me and would have been stopped out if I had used a resting stop later but later turn around for a winner, but I also sometimes exit much deeper of a loss than I had hoped for.

For momentum trades I mainly use trailing stops, sometimes I'll sell a portion at a certain "house money" level.

For discretionary swing trades sometimes I use options to hedge my losses, either on a correlated pair, buy an outright put if I'm long or call if I'm short, or I'll collar the trade to minimize my downside while minimizing my upside, but at $0 cost.

Pick your poison, whatever works best for you. I backtest different stop methods for each strategy to find which one works best.

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shodson View Post
I never use resting/hard stop loss orders.

I have different strategies that use different stop loss methods

For mean reversion trades I check indicators or price levels for stops but only check and execute the stops after the bar closes. This prevents me from getting out of trades that initially go against me and would have been stopped out if I had used a resting stop later but later turn around for a winner, but I also sometimes exit much deeper of a loss than I had hoped for.

I used to do that because it seemed like a lot of my trades were reversing just under my stops. I came up with a rule that I would act only after the price closed below where my stop was calculated. Then I would place a hard stop below the low of that price bar. Every so often a trade would get away on me resulting in a much bigger loss than I had planned. In the long run that rule was going to cost me money.

I did a review of all my trades and found it would have been to my advantage to take the stops. The numbers showed that I lost more letting my trades go past my stops than I would have if I had used hard stops.

My thinking now is that the stop is placed at a point where if it traded there, the trade would be invalid. If it hits that price I should be out. I enter trades with a bracket order and only move my stop in the direction of the trade. It also causes less stress as I don’t have to make a decision if price exceeded my calculated stop.

"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
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deaddog View Post
I used to do that because it seemed like a lot of my trades were reversing just under my stops. I came up with a rule that I would act only after the price closed below where my stop was calculated. Then I would place a hard stop below the low of that price bar. Every so often a trade would get away on me resulting in a much bigger loss than I had planned. In the long run that rule was going to cost me money.

I did a review of all my trades and found it would have been to my advantage to take the stops. The numbers showed that I lost more letting my trades go past my stops than I would have if I had used hard stops.

My thinking now is that the stop is placed at a point where if it traded there, the trade would be invalid. If it hits that price I should be out. I enter trades with a bracket order and only move my stop in the direction of the trade. It also causes less stress as I don’t have to make a decision if price exceeded my calculated stop.

Yeah, you definitely have to test which type of stop will work best for you. I trade on larger timeframes (1hr to 1day time frames, depending on strategy and instrument) so I don't "stress" too much because I don't look at them all day and my risk on each trade is a very small percentage of my account (less than 1%).

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shodson View Post
I trade on larger timeframes (1hr to 1day time frames, depending on strategy and instrument) so I don't "stress" too much because I don't look at them all day and my risk on each trade is a very small percentage of my account (less than 1%).

Likewise: I swing trade stocks. If I have a day trade it's because I'm wrong about the direction and I've been stopped out.

I take my losses as planned then can re-assess and get back in if the criteria are favorable.

Here's a chart I posted in a different thread that shows why I place hard stops.


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bourgeois pig View Post
I am a rookie and most of the lessons that I have learned the hard way are related to stops.
Some of the lessons learned were the result of my bravado (ignorance).
Some were actually the result of following my rules. (discipline)
Now I am learning to manage fear and desire (psychology)

FIrst live trade ever. 9:30 a.m. opening bell. market moves up. I click BUY (market). 1 contract. ES. Naked. No stops. ...Or so I thought....
In mere seconds I see profits rise to $62.50 then back to $50. I exit. $38.50 profit minus brokers fee.
"WOW! I am going to be good at this" My adrenailine is pupming. Must have cigarrette.
GO outside. Smoke. Come back..."Whats this?? I am in a trade!?!? (didn't realize my platform had preset stops and the stop became a working order after i sold out of my long)
Luckily I am now up $100. Good ,but..."I'm not supposed to be in this trade!" Cancel. EXit. Get me out!
"WOW, I can do this."5 minutes of trading and I am up $100 dollars!
Leave my proverbial desk to go run errands. Return home. 2pm. Yellen speaks. Market rises. Once again, I break my initial rules. CLick BUY. (Market). Now up $185. "Yay!! I am awesome. I am going to quit my job. I should turn off my machine for the day!!(Take what the market gave me)" NOPE. I jumped back in. No set stops. Market reverses with a fury. I am using mental stops. I have a small account. THe pain is too much. I exit down $185 for the day. All this happens in a couple of minutes. "WTF!!"
Lesson for small account trader.....Thats me. Use stops you big dummy. The market has the potential to move faster than you can make descisions!

Lesson 2. Today I will recover my losses. Mmmm HMMMM...
Non farm payroll. 8:30am EST. Market rises sharply. CLick BUY Order is filled a second later but 8 points above intended entry. watch profits flash to $125 and then down to -$200. All of this in seconds. Lesson learned. Don't place market orders immediatley after a news release and USE STOPS! Especaillly with a small account!! Note: While sitting there scratching my head wondering WTF I watched the market move back in to what would have been profitable territory had i stayed in the trade. Salt on the wound.

Now these 2 days were complete rookie mistakes. But the thing is , I knew not to violate these rules. I read them. I took notes on them. THey were in my lists of rules. I had read a lot about managing risk. THe 2% rule. The 5% rule, always use STOPS. Guess all those lessons didn't register. Needed a wallop against my head to realize them.

I began to set my stops at 2%.
Result: Getting stopped out of trades that would have been good trades except for my shallow STOP LOSS.
Lesson Learned: If using shallow stops. Precise entry is crucial. Also in a fast moving market, like those after news releases, a STOP LIMIT can get jumped and a STOP MARKET can result in massive sllipage exceeding ones determined risk.

SO while I have learned lessons about using stops, and the need for precsicion while trading a small account, my new endeavor is getting a hold of my emotions and not being afraid to get back in after being stopped out when my initial idea turns out to be correct. But that is for another thread....

While I submit this for the experienced to laugh and reminence at (but I don't mind because in retro spect I think its funny also! LESSON: Don't be attached to my convictions when trading, accept that sometimes I will be wrong. My preset stop losses will determine this so i don't have to. And be able to laugh at my own follies) I also submit it for the rookies to learn from. Risk management is vital and STOPS are a huge part of RISk management.

Luckily I have not blown up my account...YET!I have been sitting on the sidelines and watching more than not..... I take the occasional scalp. I occasionally win and I occasionally lose. But most importantly I take trades at times when the risk of stop jumping and slippage is low and I always use preset stops. I intend to start a jounal on this forum whence I began to actively trade again so that I can be critiqued, and when warranted, lambasted, and get the occasional pat on the cyber back from the many seasoned and highly intelligent entities on this forum. ( Seriously, SOmetimes I have no idea what they are talking about LOL. Just goes right over my head) But seriously, THis forum is awesome. Reading the members journals and experiences have been invaluable to my learning! Thanks BM's!!

Last rule: THE MARKET WILL ALWAYS BE THERE. IF you don't believe that, your trading account will not.

Wow this is seasoned with a lot of great lessons. Most traders don't even get this far in their first year lol. If you can take all these lessons to heart and commit it to memory you are well above the pack. The most important thing for a new trader to learn is stops. If one can properly identify where to put their stops the winners will take care of themselves. Good luck my holy delicious pork friend! I hope you love bbq because I love your name.

R.I.P. Joseph Bach (Itchymoku), 1987-2018.
Please visit this thread for more information.
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  #32 (permalink)
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How often do your limit stops get jumped for those who use them? I was wondering if it's more advantageous to use these types of stops while actively at the computer and manually exit out of the position if it gets jumped to avoid slippage. I'd have to compare the amount of slippage to the amount of stop jumps to see which is better.

Thanks in advance to whoever can answer me.

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Itchymoku View Post
How often do your limit stops get jumped for those who use them? I was wondering if it's more advantageous to use these types of stops while actively at the computer and manually exit out of the position if it gets jumped to avoid slippage. I'd have to compare the amount of slippage to the amount of stop jumps to see which is better.

Thanks in advance to whoever can answer me.

I don't use stop limits for fear of getting jumped. While i like your idea about manually exiting in the event of a jump I am also hesitant as If the market is moving with enough force to jump my stop then by the time my manual exit was hit I may have already exceeded my risk parameter in excess.

After all that i have read about stop jumps i have been using market stops and as a further note I usally get a tick slippage and sometimes 2. That is with very limited experience as I have been doing more watching and learning as of late. Which is probably why I haven't blown out my account.

I probably should demo more but I have found that my mindset while simulating is so much different than real time.
And throw in the fact that fills and stops are unrealistic in demo render me just watching real time and taking an occaisional shot with a tight stop.

I would be interested to the answer to your question also from someone who has experience with limit stops.
Do you use stops at all? I would have thought that you had experience with limit stops.
MMMMmmmmm BBQ!

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bourgeois pig View Post
I don't use stop limits for fear of getting jumped. While i like your idea about manually exiting in the event of a jump I am also hesitant as If the market is moving with enough force to jump my stop then by the time my manual exit was hit I may have already exceeded my risk parameter in excess.

After all that i have read about stop jumps i have been using market stops and as a further note I usally get a tick slippage and sometimes 2. That is with very limited experience as I have been doing more watching and learning as of late. Which is probably why I haven't blown out my account.

I probably should demo more but I have found that my mindset while simulating is so much different than real time.
And throw in the fact that fills and stops are unrealistic in demo render me just watching real time and taking an occaisional shot with a tight stop.

I would be interested to the answer to your question also from someone who has experience with limit stops.
Do you use stops at all? I would have thought that you had experience with limit stops.
MMMMmmmmm BBQ!

I've used both in the past but never had it jumped. I'm afraid of a jump as well so I've pretty much always use market aside from experimenting a few times and scale outs. I think a good idea would be to have a limit stop that can identify if price is above or below the order to trigger a program to enter a market stop immediate there after in the event of a jump . This is such a great idea I'm sure someone else has though of it so I won't take credit for it.

What's your favorite BBQ? Do you make your own? We have a BBQ cult on bmt if you haven't noticed lol.



I like Memphis dry rub ribbys

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Itchymoku View Post
Wow this is seasoned with a lot of great lessons. Most traders don't even get this far in their first year lol. If you can take all these lessons to heart and commit it to memory you are well above the pack. The most important thing for a new trader to learn is stops. If one can properly identify where to put their stops the winners will take care of themselves. Good luck my holy delicious pork friend! I hope you love bbq because I love your name.

I thought I had learned a lot....enough to be successful anyway. I had simulated for a year amd read many books. The first 3 days of trading I broke every rule in my notes and lost 12% of my account. That was my first lesson in risk managment! Yikes! Then I found this thread and realized that there was so much more to trading than I originally thought. The main thing being psychology. I always kind of skimmed through the Psycology chapters thinking "I got this"
Yeah right.

Another thing that I always read was about journaling which I never put much thought in to. But now i realize the importance of it after browsing the jounals on this forum. When i do set sail again I plan to journal my journey here.

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bourgeois pig View Post
I thought I had learned a lot....enough to be successful anyway. I had simulated for a year amd read many books. The first 3 days of trading I broke every rule in my notes and lost 12% of my account. That was my first lesson in risk managment! Yikes! Then I found this thread and realized that there was so much more to trading than I originally thought. The main thing being psychology. I always kind of skimmed through the Psycology chapters thinking "I got this"
Yeah right.

Another thing that I always read was about journaling which I never put much thought in to. But now i realize the importance of it after browsing the jounals on this forum. When i do set sail again I plan to journal my journey here.

Journalling is a must. 12% is nothing, I've blown an entire account on the first day. I've made 20% before in a couple weeks grinding away with risking 1% per trade and I consider myself an average trader so don't be worried about it just keep moving forward. You're very smart and I'm sure you can make it back shortly if you respect the rules of the game and you plug away looking for opportunities where they present themselves.

R.I.P. Joseph Bach (Itchymoku), 1987-2018.
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I've used both in the past but never had it jumped. I'm afraid of a jump as well so I've pretty much always use market aside from experimenting a few times and scale outs. I think a good idea would be to have a limit stop that can identify if price is above or below the order to trigger a program to enter a market stop immediate there after in the event of a jump . This is such a great idea I'm sure someone else has though of it so I won't take credit for it.

What's your favorite BBQ? Do you make your own? We have a BBQ cult on bmt if you haven't noticed lol.



I like Memphis dry rub ribbys

That is a good idea.
As far as BBQ goes I like all BBQ as long as it was prepared with love. I grew up in eastern NC and that region is famous for its particular brand of pig. Medium cherry smoke with a vinegar based sauce. I work in fine dining so I get to eat a lot of good Fusion BBQ. I make a nice thai bbq myself. I pressure cook a boston butt with red curry paste , kifir, galangal, basil, and lemongrass and then roll that up in burrito shells with a red onion, cucumber, thai chili, and cilantro relish....oh yeah and unsalted white rice. Its always a hit at the potlucks!

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bourgeois pig View Post
That is a good idea.
As far as BBQ goes I like all BBQ as long as it was prepared with love. I grew up in eastern NC and that region is famous for its particular brand of pig. Medium cherry smoke with a vinegar based sauce. I work in fine dining so I get to eat a lot of good Fusion BBQ. I make a nice thai bbq myself. I pressure cook a boston butt with red curry paste , kifir, galangal, basil, and lemongrass and then roll that up in burrito shells with a red onion, cucumber, thai chili, and cilantro relish....oh yeah and unsalted white rice. Its always a hit at the potlucks!



Oh mother of god this is more than I can ask for in a post! Mouth is watering. you're awesome! There is nothing more than I love hijacking a thread with BBQ. This is why I love futures.io (formerly BMT) and BM on a cruise so he can't stop this madness from ensuing. LOLOL

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DUDE, don't get me in trouble! I just got here.
LoL

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  #40 (permalink)
Philadelphia
 
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bourgeois pig View Post
DUDE, don't get me in trouble! I just got here.
LoL

It's okay for a few posts as long as it doesn't go overboard. LOL



Just like stop placement

R.I.P. Joseph Bach (Itchymoku), 1987-2018.
Please visit this thread for more information.
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  #41 (permalink)
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If I ever do get banned for something it'll be bbq related trust me.

Even my cat has learned to like it living with me.

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  #42 (permalink)
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bourgeois pig's Avatar
 
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I watched the order flow video with John GRady and noticed he was trding bonds. I also notice that you trade financials which to my understanding would include bonds ...or treasury notes... Are they the same thing?
Something that has me confused about them is the 126 07.5.

What i am asking is what does that mean? Why is there a space after the 6?

Probably a dumb question with an easy answer but humor me.

I wouldn't really have noticed this but last night I glanced at my quote board and noticed that the 10 year was on a small rally. I felt like going long but told myself that i had no buisness doing so since i didn't even know how to read the numbers.
I'm going to look it up but sometimes a regularl person can explain it better.

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  #43 (permalink)
 
 
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bourgeois pig View Post
I watched the order flow video with John GRady and noticed he was trding bonds. I also notice that you trade financials which to my understanding would include bonds ...or treasury notes... Are they the same thing?
Something that has me confused about them is the 126 07.5.

What i am asking is what does that mean? Why is there a space after the 6?

Probably a dumb question with an easy answer but humor me.

I wouldn't really have noticed this but last night I glanced at my quote board and noticed that the 10 year was on a small rally. I felt like going long but told myself that i had no buisness doing so since i didn't even know how to read the numbers.
I'm going to look it up but sometimes a regularl person can explain it better.

Notes and Bonds are 2 different products. Go to https://www.cmegroup.com/ for details on these contracts.

Prices is bonds and notes are quored in points + 32nds.

So, 126 0.7.5 means 126 + 7.5/32 = 126.234275 >>> multiply that by 1000, and you have the current dollar amount value of one contract.

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  #44 (permalink)
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Itchymoku View Post
It's okay for a few posts as long as it doesn't go overboard. LOL



Just like stop placement

THATs NO ORDINARY PIG.....THAT PIG IS MY BROTHER!!
I'll never forget his eyes!
Are those Bannana leaves? Wait a minute...IS that a Phillipino pig pickin?

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  #45 (permalink)
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bourgeois pig View Post
THATs NO ORDINARY PIG.....THAT PIG IS MY BROTHER!!
I'll never forget his eyes!
Are those Bannana leaves? Wait a minute...IS that a Phillipino pig pickin?

He's in a better place my friend and I'm sure he doesn't want his delicious body to go to waste and not be enjoyed. The only way to live on is to be consumed. That way in a weird spiritual fashion the pig is reincarnated. He does look happy doesn't he?


R.I.P. Joseph Bach (Itchymoku), 1987-2018.
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  #46 (permalink)
Bakersfield, CA USA
 
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Well this thread began asking about Hard Stops. I read it yesterday after I answered the question "Do you Use Stops..."

I sold Gold today and set my stop to move to break even and at $500 profit. I was thinking that was a little too small for gold if I wanted to hold all day. (I have had good success this week with gold and Crude but have exited early leaving a lot of potential profit on the table). So today I decided to move the stop to break-even at 50 ticks profit and leave it alone for the rest of the day with the plan to exit on close. I did get enough movement in my direction to move the stop What a reversal. Gold was up 36 points from my short Stop entry.

I am happy to have broken even on the trade.

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futures io Trading Community Psychology and Money Management > Hard Stop Placement – The Great Contradiction?


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