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No more STOPS, No more TARGETS


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No more STOPS, No more TARGETS

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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?

Let the discussion begin...

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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.

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Easy:

Reasonable for the experienced (read: consistently profitable) trader. Russian roulette for the newbie.

Watch what you say around the children!

-RK

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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.

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josh View Post
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.

Let the discussion begin...

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~

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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.

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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.

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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!

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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.

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wldman View Post
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?

Mostly day timeframe, hold time for winners is usually about 30 minutes to 4 hours, depending on the day type and time of day. I like the idea that it is a "stop profit" order... lol, good stuff.



wldman View Post
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.

Yes, I keep track of MAE (I call it max drawdown on a trade on my spreadsheet). I have a chart that shows profit to MAE. "Good" is 2:1 (profit:MAE) and better. "Okay" is 1:1. Some trades are simply great and have like a 10:1, but most are in the 2:1 range.

When to say "this trade will not be a loser" is quite tricky sometimes. How many stops to BE have been triggered with a favorable move following, versus genuine "I'm wrong at this point"? Depends on the trader of course. But (for ES anyway) the 10-12 tick favorable move is tricky -- this morning, it would have killed me. Other times, it is fine. Again, that's where judgement comes in, and why I don't like to have a rule that says this, as the rule does not take the market context into consideration.

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By the way, this topic is something I have wanted to discuss with others for some time, and it is not the direct result of a single trade today. I have put thought into this before and today seemed to be a good time to open the topic up for discussion in a new thread.

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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.

A corollary / related question ... I wonder how many traders who we would consider "professional" are using things like ATM strategies, and other platform features that are so focused on among retail traders. I mean, does a professional trader really care about bells and whistles involving order entry and the like? Just thinking out loud.

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By the way, this topic is something I have wanted to discuss with others for some time, and it is not the direct result of a single trade today. I have put thought into this before and today seemed to be a good time to open the topic up for discussion in a new thread.

Josh - your profile says, Risk Manager,

I should have noticed that first, so, are you secular (at work), or are you, like most of us, full time independent traders?

this is a very good thread, with a lot of fore thought, but, are we helping a paid trader / manager?

its just that perspective and use of information is dependent upon our (how should I say) predisposition?

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josh View Post
A corollary / related question ... I wonder how many traders who we would consider "professional" are using things like ATM strategies, and other platform features that are so focused on among retail traders. I mean, does a professional trader really care about bells and whistles involving order entry and the like? Just thinking out loud.

In my opinion, which is based on talking to a ton of people in various roles, is that such things (ATM, etc) are never on a list of considerations. Those things are just for retail.

But you have to keep in mind that institutions and funds have other tools in place instead, like dedicated risk managers and a long laundry list of what they can or cannot do risk wise, so in most ways they are far better off than retail because they simply cannot move their stops or make foolish decisions.

But I think things like trailing targets and stuff are not used too widely because it's just an arbitrary number that makes no sense. If you move your stop, there should be a reason other than "price moved in my favor 10 ticks".

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are we helping a paid trader / manager?

I think you are basically asking, do I work for anyone, or am I totally independent, and the answer is, I'm totally independent (unless you count this forum ).

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In my opinion, which is based on talking to a ton of people in various roles, is that such things (ATM, etc) are never on a list of considerations. Those things are just for retail.

But you have to keep in mind that institutions and funds have other tools in place instead, like dedicated risk managers and a long laundry list of what they can or cannot do risk wise, so in most ways they are far better off than retail because they simply cannot move their stops or make foolish decisions.

But I think things like trailing targets and stuff are not used too widely because it's just an arbitrary number that makes no sense. If you move your stop, there should be a reason other than "price moved in my favor 10 ticks".

Good points Mike, and thanks for relaying info based on your experience in interacting with so many different types of people in this business.

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at all, true enough.

Some guys have the luxury of almost unlimited capital and they are very patient plus they can trade big enough size and hang around to get out of a well averaged position.

They may also be long the "wings" and essentially hedged or they may lay risk off in the other products or use options. Some guys don't sweat too much because they know the "pairs" relationship and that everything tends put in a range in such a way to allow for an escape.

IMO a typical sole prop should not trade without some way to hedge or lay off risk. It is unfortunate that taking a loss through a stop is for most people the most practical way.

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I use ATMs and Interactive Brokers. I use this mostly because I'm in Thailand and it's not unusual for connections/power to drop for an extended period.

So - with this in place, my risk of equipment failure is covered.

One of the advantages of guys in prop shops and other institutions is that they pay a lot of $$$ for infrastructure and don't have to worry about the stuff I do.

In terms of stops - my initial stop is 4 ticks. The way I trade, I don't expect my trades to go against me much. In fact, for a lot of trades, I don't expect it to go against me more than 2 ticks. Other trades, I'll give a lot of wiggle room. Just depends on the trade.

I'd never use an automated trailing stop, it seems an odd thing to do. You spend all that time getting an entry and then you give up when it comes to managing the trade! I have to say, reversing a trade seems equally odd to me.

What I do like about ATMs is that it puts orders out there for me that I can then move about.

I know a few professional day traders and full-time retail traders trading outrights & without exception, they all know where they will exit a losing trade. This is a stop. Doesn't matter whether you have an order out there, it's still a stop. I've never met a professional day trader that didn't know where they'd exit a trade if it went against them.

If you have the infrastructure and you have the mental strength, you don't need a stop order out there. If you trade a slower market - like the treasuries, you can often work an exit and get out with a tick of price improvement.

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josh View Post
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.

One thing to consider is that the best management technique for any trade (or series), is only known in hindsight.

What would have made you more money today could have lost you money yesterday.

I scale out of trades but I do have an exception. There are times where I will just jump on a move. I'll do this if I think the market is good for an extended move and probably won't offer much chance to get back in. Happens 1-2 days out of 10. For those trades, I think a small initial position is more suitable and then add on as it goes your way. It gets less risky as the move continues.

Other than that - I scale out. I trade short term and the way the ES is, I find it suits me to trade that way. I am sure someone could 'prove' mathematically that another method is more profitable but they aren't going to come & press the button for me, are they?

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I don't use stops. I hit market to get out when I am wrong.
I use fixed targets for scaling out.

For longer term swings, I often hedge in place of stops and short term targets.

That's seemed to work the best for me so far.

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DionysusToast View Post
I know a few professional day traders and full-time retail traders trading outrights & without exception, they all know where they will exit a losing trade. This is a stop. Doesn't matter whether you have an order out there, it's still a stop. I've never met a professional day trader that didn't know where they'd exit a trade if it went against them.

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?"

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For longer term swings, I often hedge in place of stops and short term targets.

For ES or other equity index, what do you use to hedge? Treasuries?

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josh View Post
For ES or other equity index, what do you use to hedge? Treasuries?

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.

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I think you are basically asking, do I work for anyone, or am I totally independent, and the answer is, I'm totally independent (unless you count this forum ).

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.

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kronie View Post
SC - Sierra Charts

Relative to Ninja, how much easier is it to achieve these ATM's, easy stop movements and bracket trades?

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.


kronie View Post
So, at this point, where do we stand?, what have you concluded?, since this is an active discussion?

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.

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  #27 (permalink)
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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.


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  #28 (permalink)
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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.

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  #29 (permalink)
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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."
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  #30 (permalink)
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addchild View Post
A mental stop loss should theoretically be fine, but there is always the risk of catastrophic proportions.

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.

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  #31 (permalink)
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liquidcci View Post
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.

big moves, inability to get out or take the out-size profit, when it goes in you favor,

one essential key to staying in this futures trading game long term are using defensive targets and stops,

this is essentially the same issue of buying 3 cars (for example) and scaling out...
1) it guarantees a lower average cost, when you start scaling and getting filled
2) it allows you to walk away and live for another trade
3) it cheats you of a larger, more consistent profit for all 3 cars, if one simply just held,
4) it cuts risk as you proceed

a number of trading schools are loathe to allow this discussion to proceed, so, its appropriate for a forum like this,
but in most classes, this concept of naked orders are heavily discouraged...but then again, at this point, I'm only being repetitive...

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  #32 (permalink)
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josh View Post
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.

So where would do put a "holy crap" stop? Would it be different from day to day depending on the action at hand? Because to me without a systematic way of accounting for the risk at hand, you will always be looking over your shoulder wondering if it really needs to be that far out.

To me it still seems that trading without a stop is a solution to not having a strong grasp on the risk at hand. Which again, imo, the only thing that really matters.

"Watch the costs, and the profits take care of themselves." - Andrew Carnegie

"Where you want to be is always in control, never wishing, always trading, and always first and foremost protecting your ass. That's why most people lose money as individual investors or traders because they're not focusing on losing money. They need to focus on the money that they have at risk and how much capital is at risk in any single investment they have. If everyone spent 90 percent of their time on that, not 90 percent of the time on pie-in-the-sky ideas on how much money they're going to make, then they will be incredibly successful investors." - Paul Tudor Jones

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  #33 (permalink)
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liquidcci View Post
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.

There are also big moves that can happen and be over in the blink of an eye, like the Flash Crash of May 2010 and several mini-crashes since. Having an emergency stop on those days is very costly.

That said, everyone should trade with a stop. If you don't trade with a stop, then you better not complain one word when something happens because you made the decision to trade without the net.

Mike

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  #34 (permalink)
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Big Mike View Post
There are also big moves that can happen and be over in the blink of an eye, like the Flash Crash of May 2010 and several mini-crashes since. Having an emergency stop on those days is very costly.

That said, everyone should trade with a stop. If you don't trade with a stop, then you better not complain one word when something happens because you made the decision to trade without the net.

Mike

Stops are essential; whether mental,but not deviate, or set on the new position. I am a simple 'retail' trader.

I have just eaten one on ES 143775 as I am writing/posting.

Your point re Crash of May 2010...I remember it very well. I took a few days off because nobody in their right mind could have traded efficiently through that period; not unless they had absolutely no respect for their capital as it was ,essentially, an unmanageable market.

From what I read from from this thread and others, it would seem many think "too hard" instead of simply having faith in their consistant trading strategy and letting it happen.

I may be wrong...have been many,many ,many times before....

Trader

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  #35 (permalink)
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this is an interesting discussion. i have been questioning how i use stops lately so this has given me food for thought. one thing that a stop can do that is counterproductive is avail you of the responsiblity of managing your trade. It can give you an excuse to stay in the market when your trade is clearly not doing what you anticipated - like 'oh, I have a stop so maybe I'll just wait even though this trade is not really working'. I traded with that guy don miller in one of his classes and he never placed a stop. You may remember he gained notoriety when he made 1.6 mill trading the es in 2008. Those were some of the most volatile markets anyone has seen and he never placed a stop even though he might have 75 contracts on. He did what he called 'controlling risk with size' - he would just get bigger or smaller depending on how much risk he felt there was to his position.

Personally, I don't feel there is a great risk of catastrophic losses when not using a stop as long as you are paying close attention . Markets usually show you your trade is not working before they go too far against you, the danger lies in personal management.

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  #36 (permalink)
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addchild View Post
So where would do put a "holy crap" stop?

Depends on the size of the position and what a worst case loss would be...


addchild View Post
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.

I would suggest that there are many ways that risk can be minimized, as there are different types of risk.

A stop in the market only really protects against what some might call "event risk" (I know there are more well-defined names) -- the risk that Iran launches nukes, or that a buy program goes haywire, or that the internet connection dies phone both die at the same time while some event occurs (again, I'm sure there are more granular ways to define these types of risk but I think we can umbrella them together for our purposes). This is why I think that regardless of one's take on things, some catastrophe stop at least should be in the market.

The first way that risk is minimized, IMO, is by getting the direction of the trade "right", and by having good trade location for opening a position ("good" being based on future, yet unknown, market behavior and direction), neither of which have anything to do with a stop. In the event that this risk is not minimized, i.e., location is bad or the direction is just flat out wrong, then a trader can just as easily close the position manually. This is no less dangerous (notwithstanding event risk mentioned above) than having a stop in the market. A trader who will let the trade go way against him without a stop, ignoring risk principles, will just as easily move the stop (probably all the way until the market reverses just after hitting his stop) and ignore risk management this way. The only way this can be truly prevented is if there is an external force (a manager, a brokerage, etc) who closes a position without consent of the trader.


addchild View Post
"Watch the costs, and the profits take care of themselves." - Andrew Carnegie

"Where you want to be is always in control, never wishing, always trading, and always first and foremost protecting your ass. That's why most people lose money as individual investors or traders because they're not focusing on losing money. They need to focus on the money that they have at risk and how much capital is at risk in any single investment they have. If everyone spent 90 percent of their time on that, not 90 percent of the time on pie-in-the-sky ideas on how much money they're going to make, then they will be incredibly successful investors." - Paul Tudor Jones

I appreciate very much these quotes. Last week I had a day where I did not manage risk well, and paid for it. However, it had nothing to do with stops (in fact, the loss would have been much lower without them). I keep a journal where risk is my #1 metric. I have not yet captured trades in October, as I have been behind working on some other things, but here are a couple of portions of the main page showing the last 2 weeks in September. I post this not to boast on the results (as my PF is usually closer to 2.5, and last week I actually lost money), but to demonstrate that I appreciate the value of risk management (while still failing to adhere to it sometimes, like last week which is not reflected in these stats).

My contention, as the above should make clear, however, is that I do not equate stops with "normal" risk management, in day-to-day operations. As I mentioned, I think a stop always has its place for the fat tails the market throw at us from time-to-time.

The question we all have to individually ask ourselves is this: does using stops in a traditional way help or harm our bottom line, taking all factors into consideration? Are people who are advocating using stops or not using them, themselves profitable on a consistent basis, with real money? I'm sure some people from both camps are quite successful, and some are not.

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  #37 (permalink)
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Surly View Post
It can give you an excuse to stay in the market when your trade is clearly not doing what you anticipated - like 'oh, I have a stop so maybe I'll just wait even though this trade is not really working'.

+100

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  #38 (permalink)
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DionysusToast View Post
If you have the infrastructure and you have the mental strength, you don't need a stop order out there. If you trade a slower market - like the treasuries, you can often work an exit and get out with a tick of price improvement.

Conversely, if you trade a fast market, like CL, which tends to have episodes of moving hundreds of ticks in 60 seconds, on sustained moves which do not always snap back, not having a stop could be disastrous, before a trader even has time to react.

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  #39 (permalink)
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josh View Post
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?

Let the discussion begin...

I remember when Globex was launched in '92, many thought it might not "catch on," most traders only used it to clean up trades from the regular session. I think it was like the first time we typed our credit card numbers into our computers and sent it off into cyber space, trust was an issue. But with the deregulation of markets and mass marketing, one by one we cinched up our jock straps, opened online accounts, down loaded platforms and trusted the world not to hack into our accounts and steal all our money. There's a lot of moving parts, and a lot of lines of code between my mouse, my market and my account. Everyday I (we) trust that all those pieces will work, flawlessly. I find the most interesting part of the equation is, nobody can guarantee any of it will work at all! But we still do it.

I think it's a trust issue, I usually put a stop in the market so deep that it never shows up on my DOM and leave it there all day, I don't trade from the chart so I don't see it there either. I have had hardware failures and had to call in to get flat, but in those situations I wasn't freaking out that a flash crash may occur within the few minutes it takes me to close out my orders.

I also believe like you mentioned, "the visual presence" can indeed "cause one to take his focus off the market's activity." I've never traded on the floor but I would assume the real 'cowboys' could see where other traders mental stops where by watching/hearing the emotions or body language of the other traders, I think what you describe is quite similar. It's like driving down the road with an idiot light on in your car, you know you should stop immediately but who among us hasn't tried to get to the next exit, sometimes at great costs.

One last thought, I think many (most) brokers have just been jerking off for the last twenty years, and remain focused on churning commissions from the 90%. I find it hard to believe, maybe even incredible that we have to put our broker's "nuts in a vise" just to find out if the orders we place are actually at the exchange or sitting right here on my little computer a thousand miles away from the action. I assume it has to do with cost, but I cannot understand why this, after 20 years, is still an issue. I hope we begin to see some new "out of the box" concepts in trading platforms, most of us are using 20 year old technology as we try to compete with firms that have IMO, unlimited resources.


I wanted to incorporate this as an example of how vulnerable we are when we do what we do, even the big guys make mistakes, (or was it intentional?).

This was from the 10-09-12 session
Today’s confusion around the 10-year Spanish benchmark was an example of how easily investors can be spooked by unexpected announcements from Europe. The EUR/USD dropped nearly 100 pips at the start of the London trading session when Bloomberg Terminals showed an incorrect Bund/Bono spread. This was quickly corrected but left a lasting impression on the EUR/USD, which failed to recapture its losses.

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  #40 (permalink)
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I look at risk from a time in the market perspective. I believe @josh said something like 30 min to 4 hours for his trades.

My bot swing trades (average trade is about 3 days but ranges from same day to 10 days) with only a time stop, no price stop. I know what kind of damage can be done in the 3 days before the time stop check. If my bot goes long and the market goes straight down for 3 days say 10-15% total, its effect on my account would be at the edge of my tolerances. Would suck if it happened, but I know it is possible. That is how I evaluate my risk.

If you wanted to you could calculate your time risk based upon certain market characteristics and place a price stop there. You would never want to see it hit, but it would remain part of your risk profile.

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  #41 (permalink)
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Hi Josh

Maybe that worked for you this time, but will it work over a large sample of trades? The difficult thing is the market will reward both good and bad decisions impartially. Bad decisions are often reinforced when they're rewarded and don't look wrong at the time.

It will take a sample of say 50 trades to work out whether "no more stops, no more targets" is working for you.

With so much discretion it will be emotionally harder because you will have full responsibility for your actions and not be able to compare your actions against system rules. Correct actions will provide profits and losses, bad the same. Each trade is a unique experience so it's likely to become confusing about what to do and how to improve.

Good luck and I wish you all the best with it.

Cheers Rach

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  #42 (permalink)
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I don't use stops either. I have certain levels or indicators that tell me when to get out, and that's when I do. But I don't use resting stop orders.

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  #43 (permalink)
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generally, no hard stops here either. Mostly because I trade off 1 or 5 minute charts and getting "dinged" out by some algo running the obvious ranges followed by an immediate reversal has stopped me out one too many times. My exit or "stop" starts when I begin to see the structure of the price action change. Something that is more than one exact price value.

Most of the times I actually have hard stops in the market is when I am in super scalp mode and my trade is to risk X to make Y with no exceptions-- pure EV as apposed to building a position around a trade thesis and overall market direction.

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  #44 (permalink)
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I always have a stop, but most would consider this a large stop. I place my stop where it means the market is potentially shifting. It is also my fire exit (unexpected event).
When the market tells me I am wrong on a specific trade, I usually exit on a pull back. As I play only one trend (the ongoing trend of the market), the probability to recover my price is in my favor.
Note this does mean I am waiting for a pull back. I have intermediary techniques to exit much faster and not wait like a duck in a pond.

I always have a target. The target depends on market conditions. Is the market directional or not, fast or slow, etc.

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