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This is an interesting point -- I think the mental stop has the disadvantage that the trader may get out at a worse price than the mental stop, but there's also the advantage that the trader may at times get out at a better price (if the market hits the "mental stop" and quickly moves in the trader's favor).
The main advantage of the mental stop seems to be though, that it allows the trader to evaluate whether he wants to get out of the trade based on market behavior, and not market location alone.
Let's be honest--when it comes to stop placement and the idea that if a certain price prints, the premise is invalidated, it is actually quite difficult to consistently do. In the weekly to the subsecond timeframe, market price is manipulated in such a way to take advantage of "where the market should not trade" -- it trades there, just to take advantage of better prices from stops, and to test the waters to ensure that the prices trading will indeed not bring more buyers/sellers for continuation, before it reverses in order to auction in the other direction.
So, one could ask himself: "is the behavior of the market consistent with my position?" Not necessarily, "is the current market price consistent with my position?"
If I'm trading /ES, I'll usually hedge with /YM, /NQ, or /6C
Adding on to my comment about stops earlier:
I'm not a professional trader, but I don't let one candle or an exact price dictate my market exit.
I take into account several bars and what those bars are doing in a particular price range.
Too many upthrusts/downthrusts in the markets to use an exact price from one candle IMO.
In other words, the close of a one candle is more important than the price of the candle in real time.
Platform: "I trade, therefore, I AM!"; Theme Song: "Atomic Dog!"
Trading: EMD, 6J, ZB
Posts: 796 since Oct 2009
SC - Sierra Charts
Relative to Ninja, how much easier is it to achieve these ATM's, easy stop movements and bracket trades?
One respondent swears by IB's TWS
others commented upon their in house risk algo's handling their position while they have naked orders and mental stops
So, at this point, where do we stand?, what have you concluded?, since this is an active discussion?
In sum, size dictates the ability to place naked orders (no stops or targets).
Frequently, I've seen guys curse better than sailors when a spike comes through and exceed their (mental) targets and they weren't able to fire off an
order fast enough to participate.
I suggest you read a thread I started on the Sierra subforum on futures.io (formerly BMT), as well as other threads comparing the two by others as well.
I have no conclusions and don't plan to develop any hard ones at this moment; merely to participate and enjoy the discussion for now.
For me, the nature of speculative trading is the assessment and assumption of risk. Risk that, for one reason or another, someone else (possibly someone much smarter and more informed than you or I) doesn't want. So this makes the nature of the game we play, how much risk do we need to assume to make a profit? As well as, can we afford to assume that risk? These, in my opinion, are the only questions that really matter.
Once you know how much risk you can afford to assume, and have a finite idea of how much risk you must assume to make a profit. You make a trade, and have to deal with the market risk involved with that trade. Now consider how you're going to get out if you are wrong. In options, which have an asymmetrical risk profile, that risk is called the premium and we pay it upfront to get into the trade. In futures, profits and losses are symmetrical, and risk needs to be mitigated to ensure we are no longer in the market when our trade hypothesis is proven wrong.
There are two ways to limit risk, a stop loss order placed in the market to get you out when you are wrong, or a hedge. What you're suggesting is simply a mental stop loss.
A mental stop loss should theoretically be fine, but there is always the risk of catastrophic proportions. Internet failure, hardware failure, and adverse market reaction or "toxic order flow" ( VPIN VPIN - Wikipedia, the free encyclopedia ), or god forbid a combination. Any trader who is just discounting these, is playing a nieve game, and is only lucky not to get burned (think rewarding negative behavior).
The idea of being focused on the stop order instead of the market is just something I would work to get over. The feeling of being adversely selected by randomness will be MUCH MUCH worse. I would suggest you just reevaluate the way you place stops.
The larger your time frame the less important stops become, the smaller your time frame, the more important. The scalper is committing suicide without a stop, while the investor can relatively safely spend years in the market without a stop.
If I was swing trading a stock with no leverage I can stomach no stops. But the prospect of being in a leveraged future position with no stop is terrifying at best. Even if you are watching market closely there are big moves that can happen giving you no chance to react just get hurt bad. Also what happens if you are in market and your feed or connection goes down. If this happens with a stop at the exchange you can rest easy. If you have no stop the scramble to call your broker starts but if it is a feed issue they may not be able to get you out or if they are inundated with calls and you can't get through could be painful.
"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."
Good point, and I probably was not clear that I still feel an order in the market somewhere is a good idea (just not close to the current action). Yes, if the perfect storm of catastrophe were to strike, I would like a "holy crap get me out" last resort.
