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Do you get stopped out too often?


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Do you get stopped out too often?

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  #1 (permalink)
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If you do get stopped out too often, despite the fact that you have correctly identified the S/R levels for placing your stops, perhaps your stops are too close to these levels. Most books and self-proclaimed GURUs out there will tell you to place your stops 1-2 ticks above or below these levels. Well, there are professional traders out there that read, know, and preach the same stuff and are ready to take your money; they are stop-hunters.

When placing stops one needs to think like a hunter and try not to fall in their traps. Kind of like playing reverse psychology, expecting what the hunter will think of your stops. These guys are equipped with staying power, muscles, advance computers and gps systems to track stops. So, what a trader can do is to avoid and evade them by not providing them with low hanging fruit to pick or placing a 1-2 tick stop and play dead. After all, they are known to be worst than Grizzlies (they will eat your babies too).

So, instead of confrontation with the Beast, the easiest way for a trader is to place stops at least 3-5 ticks away from the S/R levels. It is like climbing a tree in Serengeti where the Cheetahs and Hyenas can not reach you (But beware of Leopards and Vultures!)

Happy Trading!

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A stop is two things for me:

1) Disaster. Something happens, and I need to be taken out of the market.

2) I am wrong. If price trades at this price, I was wrong about the trade.

Do you think changing from 2 ticks to 6 ticks disqualifies the entire trade? If the market trades 7 ticks out of that S/R levels, is the entire trade incorrect? If you picked short, is short no longer the correct direction?

My suggestion is that anyone that trades this way is likely trading way too big (size). The better thing to do would be to decrease position risk by trading a smaller instrument (micro, spot forex, etf, etc) and then increasing their chart and their stops and targets.

I for one do not measure being wrong or right in ticks. If a daily range is 20 points, I would measure being wrong at say 10 points or so.

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  #4 (permalink)
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Big Mike View Post
A stop is two things for me:

1) Disaster. Something happens, and I need to be taken out of the market.

2) I am wrong. If price trades at this price, I was wrong about the trade.

Do you think changing from 2 ticks to 6 ticks disqualifies the entire trade? If the market trades 7 ticks out of that S/R levels, is the entire trade incorrect? If you picked short, is short no longer the correct direction?

My suggestion is that anyone that trades this way is likely trading way too big (size). The better thing to do would be to decrease position risk by trading a smaller instrument (micro, spot forex, etf, etc) and then increasing their chart and their stops and targets.

I for one do not measure being wrong or right in ticks. If a daily range is 20 points, I would measure being wrong at say 10 points or so.

Mike

Agree. Stops are for disaster and being wrong, your points 1 and 2. The rest depends on the market, time frame, and risk one uses to trade. I will never use 5 ticks stop for day trading ZB. For popular instruments like ES, CL, NQ, 6E 1or 2 ticks stops will have negative impact on your system performance (daytrading 5-20 ticks targets) compared to 3-5 tick stops.

Here is a test one can do either back testing or forward testing. Pick a simple system like CCI Pivot indicator (5M) firing off buy and sell signals when crossing the 100 line. Run four tests simultaneously with 1, 2, 3, 5 tick stops and pick a target from 5 to 20 ticks (this will give R/R of 1-4) for at least 100 trades. Then see the results.

I did this study a few years back and for sure 1 and 2 ticks stops gave the worst results. I will post them if I can extract them from my old dusting computer.

As far as qualifying or disqualifying a trade, as you mentioned the purpose of stops are simply those in your items 1 and 2. One assumes that his trade may not be qualified and thus uses stops. A trade without a stop can be considered qualified as long as you hold on to it, and will most likely be profitable eventually.

fwiw, I have a small Forex account for the sole purpose of forward testing trading micros. I do not use stops there but I use targets for carry trades. I have yet to have a loosing trade. What goes down will eventually come back. I have made a killing (relatively speaking for the size of the account) trading AUD/USD and collecting the interest difference also. I could not duplicate this performance trading full sizes without stops unless I have a huge bankroll.

Cheers!

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aligator View Post
If you do get stopped out too often, despite the fact that you have correctly identified the S/R levels for placing your stops, perhaps your stops are too close to these levels. Most books and self-proclaimed GURUs out there will tell you to place your stops 1-2 ticks above or below these levels. Well, there are professional traders out there that read, know, and preach the same stuff and are ready to take your money; they are stop-hunters.

When placing stops one needs to think like a hunter and try not to fall in their traps. Kind of like playing reverse psychology, expecting what the hunter will think of your stops. These guys are equipped with staying power, muscles, advance computers and gps systems to track stops. So, what a trader can do is to avoid and evade them by not providing them with low hanging fruit to pick or placing a 1-2 tick stop and play dead. After all, they are known to be worst than Grizzlies (they will eat your babies too).

So, instead of confrontation with the Beast, the easiest way for a trader is to place stops at least 3-5 ticks away from the S/R levels. It is like climbing a tree in Serengeti where the Cheetahs and Hyenas can not reach you (But beware of Leopards and Vultures!)

Happy Trading!

here's just a thought. if you're close to a s/r level, why don't you wait with your order to see what happens.

if indeed those levels are getting tested and they do run the stops, you're in a good position (small stops) if your entry is still valid. the bad thing is, if those levels are not getting tested you'll miss the trade.

so it depends a lot about your entry criteria as well.

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  #6 (permalink)
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Under capitalized and fear means stopped out to often.
People try to trade like an auto bot but people can not possibly trade that way.
Then they try to trade like a bank, which they can possibly not.
Taking pain is hard, that's the psychology part.
Stops have to be to protect you when you are badly wrong, not part of your trading like you want them to get hit to save you.
This seems to be misinformation put out by broker/dealers who use your stops to profit.
Risk/Reward ratio is a linear ratio is has no basis in financial markets they are not linear 1/2 2/4.
R/R has never worked for anyone.

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For those of you who were in FuturesTrader71 Webinar today:

He basically confirmed that placing 2 ticks stops above or below the S/R levels is an absolute disaster strategy.

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Silvester17 View Post
here's just a thought. if you're close to a s/r level, why don't you wait with your order to see what happens.

if indeed those levels are getting tested and they do run the stops, you're in a good position (small stops) if your entry is still valid. the bad thing is, if those levels are not getting tested you'll miss the trade.

so it depends a lot about your entry criteria as well.

Thanks @Silvester17,

Correct. But entry in my opinion is not as important as the trade management and exit criteria. As FuturesTrader71 said today in the Webinar, your entry can be on a coin toss but the profits come from trade management. He also confirmed the hazards of two tick stops at S/R levels.

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aligator View Post
For those of you who were in FuturesTrader71 Webinar today:

He basically confirmed that placing 2 ticks stops above or below the S/R levels is an absolute disaster strategy.

He also said that every trade is a 50/50 proposition.

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1nfinlty View Post
Under capitalized and fear means stopped out to often.
People try to trade like an auto bot but people can not possibly trade that way.
Then they try to trade like a bank, which they can possibly not.
Taking pain is hard, that's the psychology part.
Stops have to be to protect you when you are badly wrong, not part of your trading like you want them to get hit to save you.
This seems to be misinformation put out by broker/dealers who use your stops to profit.
Risk/Reward ratio is a linear ratio is has no basis in financial markets they are not linear 1/2 2/4.
R/R has never worked for anyone.

@1nfinlty,

Hitting some major points, can't disagree.

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aligator View Post
Thanks @ Silvester17,

Correct. But entry in my opinion is not as important as the trade management and exit criteria...

There are systems out there where the entry level is paramount. To be sure, just look at perryg's system and you'll quickly realise that some systems put quite a bit of emphasize on the entry. Specially when the SL/PT are fixed (read: no real emphasis on trade management).

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trendisyourfriend View Post
He also said that every trade is a 50/50 proposition.

That is true when placing the trade. But then anyone can certainly make it a 100% loosing trade. Sad to say not everyone can make it a 100% winning trade. So, 50/50 applies only to before we push the trade button.

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aligator View Post
That is true when placing the trade. But then anyone can certainly make it a 100% loosing trade. Sad to say not everyone can make it a 100% winning trade. So, 50/50 applies only to before we push the trade button.

What i can tell with 100% certainty is that if i was convinced every trade i place is a 50% proposition then i would never place a trade. Instead, i would play roulette and use a good money management to win over the long term since MM is king.

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I....
So, instead of confrontation with the Beast, the easiest way for a trader is to place stops at least 3-5 ticks away from the S/R levels. It is like climbing a tree in Serengeti where the Cheetahs and Hyenas can not reach you (But beware of Leopards and Vultures!)

Happy Trading!

why not put your entry 3-5t away from s/r level instead.

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trendisyourfriend View Post
There are systems out there where the entry level is paramount. To be sure, just look at perryg's system and you'll quickly realise that some systems put quite a bit of emphasize on the entry. Specially when the SL/PT are fixed (read: no real emphasis on trade management).

That's one of the issues with trading S/R levels. There is only a handful of ways to identify major S/R levels. You can be sure that the awesome level that you've marked on your chart has also been identified by 19,000 other traders, and yet another 1500 others who make a living at exploiting those obvious levels. Even if those levels hold, those players can capitalize on how much pain the former players can take while testing those levels. So, I think it comes down to how wrong can you afford to be, how much pain are you willing to take while this entire dance plays itself out. You have to be willing to take some pain to prove to yourself that you are right, or increase your stop size to give your self the chance to be right.

Personally, I prefer to trade under the radar. I choose not to trade obvious levels and popular time frames. I think whenever any phenomenon becomes to standard and well known, there are always some smart guys out there who develop counter measures to exploit them.

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aligator View Post
Thanks @Silvester17,

Correct. But entry in my opinion is not as important as the trade management and exit criteria. As FuturesTrader71 said today in the Webinar, your entry can be on a coin toss but the profits come from trade management. He also confirmed the hazards of two tick stops at S/R levels.

don't want to get into a debate. this is just how I see it and how I do it.

- entry, exit: by far the most important and most crucial aspect.

- trade management: if entries and exits are good, then automatically trade management is good too. so for me, not important. if you buy the top, no trade management will help you to make it a profitable trade. you might not lose that much. but to be honest that's not my goal. my goal is to make money.

- money management: not really important, because for me this is common sense.

- psychology: nothing but an excuse. I put it in the same category like money. if you don't have the money for trading, then you shouldn't be trading. same for your mental state. if you can't handle the stress, don't trade.

but don't worry, at least 95% here will not agree with me. which is fine.

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trendisyourfriend View Post
There are systems out there where the entry level is paramount. To be sure, just look at perryg's system and you'll quickly realise that some systems put quite a bit of emphasize on the entry. Specially when the SL/PT are fixed (read: no real emphasis on trade management).

As wonderful as Perry's entries are, Perry would be the first one to say that there are no guarantees the system will be profitable. Otherwise, everyone trading Perry's will be drinking margaritas on white sandy beaches 365 days a year and watching other eye pleasing stuff than seminars.

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cory View Post
why not put your entry 3-5t away from s/r level instead.

That is just as valid, trading the breakout or rejection of S/R.

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@monpere, Thanks, you hit it right on on nail.

@Silvester17, Thanks also. I agree and you pretty much listed my trading approach (still alive after 35 years trading without thinking of psychology)

The original post was not intended to start a debate, just a pointer. There are as many opinions as the membership on futures.io (formerly BMT), I know that much.

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monpere View Post
That's one of the issues with trading S/R levels. There is only a handful of ways to identify major S/R levels. You can be sure that the awesome level that you've marked on your chart has also been identified by 19,000 other traders, and yet another 1500 others who make a living at exploiting those obvious levels. Even if those levels hold, those players can capitalize on how much pain the former players can take while testing those levels. So, I think it comes down to how wrong can you afford to be, how much pain are you willing to take while this entire dance plays itself out. You have to be willing to take some pain to prove to yourself that you are right, or increase your stop size to give your self the chance to be right.

Personally, I prefer to trade under the radar. I choose not to trade obvious levels and popular time frames. I think whenever any phenomenon becomes to standard and well known, there are always some smart guys out there who develop counter measures to exploit them.

I like to identify those "obvious levels" and enter trades just beyond them right after everyone else got stopped....as an example about 20 ticks beyond the pivots on the TF....conditions permitting of course

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Silvester17 View Post
don't want to get into a debate. this is just how I see it and how I do it.

- entry, exit: by far the most important and most crucial aspect.

- trade management: if entries and exits are good, then automatically trade management is good too. so for me, not important. if you buy the top, no trade management will help you to make it a profitable trade. you might not lose that much. but to be honest that's not my goal. my goal is to make money.

- money management: not really important, because for me this is common sense.

- psychology: nothing but an excuse. I put it in the same category like money. if you don't have the money for trading, then you shouldn't be trading. same for your mental state. if you can't handle the stress, don't trade.

but don't worry, at least 95% here will not agree with me. which is fine.

"at least 95% here will not agree with me."
I think you underestimate your futures.io (formerly BMT) brothers and sisters....I'm sure many would agree with what you are saying (including me).

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kbit View Post
I like to identify those "obvious levels" and enter trades just beyond them right after everyone else got stopped....as an example about 20 ticks beyond the pivots on the TF....conditions permitting of course

A valid approach, but of course you miss all the trades where the 'obvious levels' actually held.

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I agree with Big Mike that position size is key here. If you're trading too large a position for comfort, you need the stop to be so close to the current action that it tends to get taken out during random noise.

Try dropping down to half size or less (this may mean trading ETFs like SPY rather than futures) and see how it feels to give trades more room to develop.

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aligator View Post
That is true when placing the trade. But then anyone can certainly make it a 100% loosing trade. Sad to say not everyone can make it a 100% winning trade. So, 50/50 applies only to before we push the trade button.

I'm sorry to have to disagree, every trade is not a 50/50 proposition. If this were true then you would have to agree that every setup is irrelevant to the statistical likelihood of success or failure; that the setup phase of a trade provides no edge whatsoever. This simply is not true. Traders have performed studies to show that various patterns and approaches provide varying degrees of statistical likelihood for success/failure with certain contexts such as as time frame etc. To prove this I challenge each and every trader reading this to throw out your setups. On the next trading day skip the "setup" phase of of the trade and just toss a coin as criterion for long or short position and use your trade management approach exclusively to negotiate your way out of your trade. Puts a knot in your stomach I'll bet. You can't and won't do it.

I agree with mikes approach, calculate ahead of time (before entry) where price needs to be to confirm that your assumptions about prices future direction were wrong and protect you from a catastrophic event. BUT make sure that your leverage isn't so big that you are effected psychologically by the loss. Every trader has different criterion about what is catastrophic, and about what point they are wrong on the trade, therefore every stop is unique to the trader and the trade. That is the best approach in my opinion.

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aligator View Post
That is true when placing the trade. But then anyone can certainly make it a 100% loosing trade. Sad to say not everyone can make it a 100% winning trade. So, 50/50 applies only to before we push the trade button.


trendisyourfriend View Post
He also said that every trade is a 50/50 proposition.

Sorry I used the wrong quote for my previous response :-)

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I've been to enough trading seminars and the one consistent from pro traders is "you're always half in and half out". Meaning scaling in and out is key. If your normal position size is 2 contracts then enter with 1 contract using a bigger stop, wait for more confirmation in your trade direction before entering the second contract using a bit of a tighter stop. Exit trades in the same way, scale out of 1 then the 2nd determined by your strat, indicators, etc.

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Last Updated on February 5, 2012


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