STOPS are Frustrating (SL) ...to take or not to take

September 5th, 2010, 01:43 PM

tigertrader

"Before you learn how to make a large amount of money, you must first learn how to lose a small amount when you are wrong." Paul Tudor Jones

Stops are like condoms; we really don't like to use them, but if we don't use them, the odds are we will eventually get killed.

Using stops, whether they are placed physically upon trade initiation or are placed manually upon your mental stop getting elected, is not open to debate. Where to place them, is of course, the eternal debate.

Yes, the better the entry, the closer you will be to the point of " being -wrong- the- market", and yes, having a good idea of what your target is, will help you determine an appropriate risk-reward ratio. But most important, is accepting the fact that stops are a necessary and intrinsic part of trading.

What I do:

1) I don't trade my P&L, but I do try to establish an acceptable risk/reward ratio

2) I attempt to place my stops where others don't

and the best way to offset getting stopped out...

3) I add to my winners by "pyramiding", and try to let them run as far as possible

"We did not all come over on the same ship, but we are all in the same boat." Bernard Baruch

The hardest of the three pieces of advice is the third one. You have left the danger zone as your position is moving in the right direction, and then you increase size and move back into that danger zone you had already left. This can easily wipe out your profits and is quite a difficult thing to do.

Also pyramiding should only be considered for trend following setups, that means trades with a high R-Multiple, but a low winning rate.

September 5th, 2010, 07:57 PM

Yeah, the third piece of advice is the most difficult, but it's also the most important. Nobody said it's going to be easy, but adding to and pressing your winners is where the "art" in the "art of trading" comes into direct play, and where the big money is made. Just ask George Soros, he wasn't busy doing a a linear regression study to determine the r-factor of the trade when he was in a good position, he was busy piling in with both hands.

Personally, I know when I'm right and I got the market by the balls, and I know when the market has me by the balls...it's called" feel". There is nothing wrong with taking a quantitative approach to trading, but it will never replace an "intuitive market sense" of price action, that has been developed and honed from years of trading the markets.

September 11th, 2010, 11:49 AM

I haven't read through all threads but here is my experience with stops. I too have lost 15k in 10 min. Which takes me months to recover from not just monetarily but psychologically from. Find a level where your recovery time is no more than a week and use that as a stop. Finally, Losers average Losers. Enough said.

September 15th, 2010, 11:15 AM

An idea for find a right stop could be this:

- take at least 30 winner trades of your strategy for every instument u trade and look the max MAE, your stop
should be max MAE + 1 or 2 ticks.
- do the same and look for average time in trade, if your trade does not go in your direction in this time and had
not hit the stop close the trade.

September 15th, 2010, 09:57 PM

Very right Luke. Also... the ART. So the average range to time. If your market isn't going to move for 30 minutes based on the time of day or ART. Do you really want to sit in the trade? And potentially loose focus.

It's too easy to get into the market and forget why after a half hour of choppy choppy.

You know what is kind of funny. It is so F'ing easy to trade bad, man I bagged -15k in a day. Why couldn't we reprogram to flip that to man I bagged +15k in a day? Shouldn't that be fessable?

mattz · October 2nd, 2010, 12:39 AM

Stop-losses could not be talked about in "isolation" of the overall approach to trading. I am not a psychologist, yet from 15 years of observation, I have noticed the following:

Traders placed stops based on their own risk tolerance. Many times (sadly but understandably) it is based on a certain comfort level which is outside any given methodology. Stop-losses have become in those instances almost random from a trading and volatility perspective.

More sophisticated Traders change # of futures contracts based on perception of success, so while the stops they have are technically driven, the odds change with each trade that is placed. At times they get hit with a large loss, and while the stop is the "blamed" on, in reality they have tilted their mathematical odds.

My last point is that when people have encountered a large # of stop-outs, they pause trading. This is frustrating and while understandable on a human level, it might be just a part of a good methodology that is traded at a wrong time.

It's a hard game, no doubt. But, you cant trade without stops.
The key is to find a methodology that you have comfort from a reward and risk perspective, most likely it has to be your own.

October 2nd, 2010, 10:12 AM

MATTZ right as rain, not only that but if your stops are the standard 1.5 pts or so, your in the zone where other traders are going to try and snap you if your trend trading. Just look at those pops off of the low or high of the day, why? Because stops are getting poped it's fueling the move.

If you're in an area where you're hoping for the waterfall or moutain top, you're more than likely going to get pinched by the counter trend traders.

Nes pas?

I tuned in to one of the pro trading teachers who have courses where they trade live and you follow along. They look to put trades on when there is very light volume in the area/price level, and then use a very small stop. If they're wrong, then a small stop out, if they're right, bingo. Of course the volatility of the instrument and the order entry are the keys to this methodology of stops and entries.

mattz · October 3rd, 2010, 11:16 PM

Thanks mainstream. There are a few more things I wanted to add based on the traders psychology, and again, this is just from experience and observation.

Beginner traders tend to say "I am not greedy, I just want 2 points out of the ES a day".
Well, to that I say what I say to my kids "you get what you get and you don't get upset"

A reward is based on your methodology (if it works), not what you think you deserve.

When traders with this approach (and again, this not criticism) see that their targets don't get hit, they decide to throw a random stop-loss based on their financial preference and/or some obvious support/resistance that traders tend to revisit.

Stop-loss is what takes you out of the trade, but it's not always the cause of losses.

I hope this helps traders tremendously, and I appreciate each and single one of you that tries to develop a methodology in the markets just to become a better trader.

October 4th, 2010, 09:58 AM

You are absolutely right. And this is what I've been getting at in my emotional trading thread. You have to take what you're given, the market will do what it wants and for reasons that don't make sense.

You get 3 ticks and the market stalls, do you wait for the trade to develop and wait for a potential SL, or take your three ticks in the ES?

I believe what Matt is saying and another poster who's name I've forgotten, but the trick IMO is to say fuck it. Thanks for the ticks, or I'm going to risk the stop. Then either way... I'm going to buy a sandwich and wait for the next trade. Whether that be today tomorrow or the next day...

Tuning out the

of the actual trading experience, and the subsequent "come down" is the biggest trick of all.

mattz · October 4th, 2010, 11:46 PM

You could all entertain the idea of using the ATM feature that exists on NinjaTrader.
Essentially, you could program stops to be triggered only if there is a certain volume associated with it (like 1,000 contracts on ES, etc). This is only one way to be certain there is something significant occurring, not just "Joe the Plumber" getting stopped and prices bounce right after.

Like one of my mentors once said "if you lose, for G-d's sakes, lose intelligently, you schmuck"

STOPS are Frustrating (SL) ...to take or not to take

Discussion in Psychology and Money Management

STOPS are Frustrating (SL) ...to take or not to take