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Now that I have your attention with the controversial thread title..
This morning I had a stellar trade sequence, and am very pleased with the result. But, had I simply not used targets, I'd have about double the profit at this point, and possibly more later.
As I was scaling into this position, I first used stops as normal, but after being shaken out and getting right back in, decided not to use stops for the rest of the sequence. The question is this: do I want to be short, or long? If the answer is "short," as it was today, then why do I want to even think about buying (with a buy stop to close or reduce the position)? If I am wrong, why not just use the "Flatten" button, or manually place orders to get out if I objectively determine that the market has shifted momentum to the other side?
Now, I DID place stops as soon as the trade had gone enough into profit for me to determine that I wanted to be flat if it came back to my average entry price. I normally have a stop somewhere, but today did not use one and found it much more relaxing. No orders waiting to effectively reverse my bias for me. No orders that are like an executioner waiting to chop our head off if we dare tread too close.
When there are target orders in the market, it can draw our attention away from the market and what it is doing. Same with stop orders.
In a ranging market, targets may make more sense, but again, why not simply monitor the market, and get out when you feel you should? How many times have you gotten flat at your target, and the market immediately reverses and never comes back? Pretty rarely for most, I would imagine. How many times have you gotten flat at your target after a good trade, and the market goes a little further, and wiggles around, and is still trading your target price or beyond at least half an hour later? Probably more times than the former scenario. I tend to want to rush the exits, so I am not using resting targets any longer.
Some may say, "Josh, your stops are simply too close if you find not using them more effective," and I would tend to agree somewhat. But isn't their visual presence alone enough to alter one's bias or concentration? And isn't the visual presence of a target order enough to cause one to take his focus off the market's activity?
I prefer to scale out, something like 0.75R, 1.5R, 2.5R or so is general idea and try to be right half the time, but I select targets based on price action not fixed increments.
Yes market can sometimes blow past your target, especially if you are scalping (I do not) but there are more times where market comes to a target and reverses, if you don't have your order sitting there and rely on 'flatten' instead, you will not get a good fill as you try and decide whether you should give it room or leave it on.
A quick addendum. Particularly with stops, I have always been a bit wary of strict adherence for one primary reason: it's what everyone says to do. "Always honor your stops" is usually followed by "patiently wait for your setups" and "never take more than 3 losing trades in a row" and etc... This advice about stops is no doubt held by some who are successful, so I'm not saying it's bad advice in general.
Platform: "I trade, therefore, I AM!"; Theme Song: "Atomic Dog!"
Trading: EMD, 6J, ZB
Posts: 796 since Oct 2009
Josh,
your stops are simply too close...
what were they anyway? Stops are a function of 1) risk tolerance, and 2) emotional where-with-all (ability to withstand more than 75% (per contract) position losses)
the previous warning (the children are watching, and this is risky) is well said.
a few expressions come to mind:
1) a broken clock is right every ..... per day
2) even a dog, gets a little sunshine once and a while....
while what you described went well for you, and good for you!, the same scenario is what has caused most to be torpedo'd
enjoy your success while it lasts, and remember these times, too~
that you try to suppress the urge to take profits defined by a targeted price area until there is decay for the premises used to enter the trade in the first place. If it breaks down pretty quick your targets do no good. Conversely if it jumps your way all your targets did was become stop profit orders.
What is the time frame and typical length of time you hold a position?
I do use a hard target for the first unit of a multiple lot trade. Beyond that I'm looking at recent price and the right edge to attempt to let winners run....very difficult still.
I never trade without a hard stop although it is sometimes not resting on a server.
Once a trade moves a certain amount my way I always move the stop to a "profit lock". So lets say that ten ticks my way NEVER becomes a loser.
I'd be curious, can you view worst adverse excursion? Look at that or say, your worst 20% of trades...study that and focus on eliminating the bottom 20%
When your worst 20% include little winners you will know that you are on it.
Some may think I'm nuts for doing this but I've been using a 5 second chart for several months now, no indicators and all squished together. It shows where slows and increases pretty easily. Also shows where support and resistance areas are as well as where they are being built. I am still using stops but placed based on the 5 second chart. So far, it's working pretty well.
Whenever you see a consensus in any field what you are seeing is a temporary sigh of relief on the part of the participants: they have agreed on where the safe intellectual ground is, and they are going to stand there and squawk.
A lot of the time that consensus is useful, but not absolute (think of the morality you learned at your mother's knee). Sometimes it is just plain stupid (think of an economics department).
As you get older, hopefully you develop some practical wisdom, some real living intelligence, which is always better at fitting its action to the context than the approximation provided by a general rule.
If you can't make a general rule work, though, you might not want to try to go rogue.
For example: if you can't consistently and naturally tell the truth, even when it is difficult for you emotionally to do so, it's probably not a good idea for you to tell a white lie in the service of the greater good. Without a track record of honesty, you probably won't be able to tell the difference between the greater good and your self-interest.
And we all know how easy it is to rationalize the latter as the former....
The applications to trading are, I think, clear.
Don't get me wrong, though, @josh, this is a good post - and it sounds like you traded well today!
best,
RK
post-script: this is obviously in response to Josh's last post - other, wiser, more skilled traders than I are now going after the trading mechanics of this. So from here on out I'll stop philosophizing and will watch and learn!
I know a couple of very big size traders that don't use stops at all. One of them says that everyone should use a stop, but he doesn't like to. The other says that no one should use stops.
Neither are what I would consider "scalpers" based on what people on the forum think of as scalping, but both are intraday traders and often flat majority by close.
