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Stop Loss


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Stop Loss

  #11 (permalink)
Martin Hannon
monaghan
 
Posts: 4 since Sep 2018
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worldbfree View Post
It really is tough for me personally because I trade strictly systems and I've learned the hard way not to have stops on. If I put them on, I usually put them way outside the ATR.

Thanks for the quote worldbfree, its nice to know there’s somebody else out there that shares my point of view.

For example if you know the possible range of an instrument (ie the DAX range from 11000 to 14500 over the past 5 years (increasing year on year)), and you keep enough in your account to cover that range, why use a stop. It eventually comes back up or down. Am I mad?
Cheers.

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  #12 (permalink)
worldbfree
Houston
 
Posts: 17 since Feb 2018
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Martin Hannon View Post
Thanks for the quote worldbfree, its nice to know there’s somebody else out there that shares my point of view.

For example if you know the possible range of an instrument (ie the DAX range from 11000 to 14500 over the past 5 years (increasing year on year)), and you keep enough in your account to cover that range, why use a stop. It eventually comes back up or down. Am I mad?
Cheers.

I trade a system in the Energy markets and I've learned that since my system does not include stops in the backtest then I shouldn't use them unless they're outside the 95% confidence interval. Even then, I only use them if I'm making a flat price trade, because swings tend to be stronger when trading just flat price. You're definitely not mad but if you're a beginner then I would recommend placing them far out just to protect yourself in case of catastrophe. Good luck!

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  #13 (permalink)
 
deaddog's Avatar
 deaddog 
Prince George BC Canada
Legendary Market Wizard
 
Experience: Advanced
Platform: National Bank Direct
Broker: NBD/BMO/Questrade
Trading: Stocks
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Stop loss is poorly named, it doesn't stop a loss it guarantees one. You get to pick how big a loss you want to take.

It would be better named a capital preservation exit, because that is what it does.

It should be part of your trading plan.

"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
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  #14 (permalink)
Martin Hannon
monaghan
 
Posts: 4 since Sep 2018
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worldbfree View Post
I trade a system in the Energy markets and I've learned that since my system does not include stops in the backtest then I shouldn't use them unless they're outside the 95% confidence interval. Even then, I only use them if I'm making a flat price trade, because swings tend to be stronger when trading just flat price. You're definitely not mad but if you're a beginner then I would recommend placing them far out just to protect yourself in case of catastrophe. Good luck!

Many thanks for your reply,
So good to get feedback.
Martin

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  #15 (permalink)
VMtrader
Boston, Massachusetts, United States
 
Posts: 12 since Aug 2010
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I've heard that a long time ago, in the time of the trading floors, brokers and traders used to 'hunt' for stop orders and because of that a lot of guys that used to be on the floor are hesitant to use them. My experience in talking to seasoned and professional traders however is that they would never consider entering a position without a Stop. Usually not without a Limit either. It seems ridiculous to go into a trade without knowing where you want to get out.

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  #16 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
Posts: 644 since Nov 2011

The problem with not setting a stop loss is that the longer you hold a position the more your returns will mimic the market returns. If you think about it, if place a trade at the beginning of the year and close at the year, over that year, your returns will match the market returns. This same principles applies on all time-scales. For example, if you open at the start of the day and close at the end of day then your returns must match the market returns over that period. You may do better due to leverage or if you hold positions short but that is all.

As for systems that do not set a stop loss, if you are able to adjust the leverage then it may work but generally it will give misleading returns. But yes, there is valid concern that over leveraging and improper use of stops is also a primary cause of losses. That is true too.



Martin Hannon View Post
Thanks for the quote worldbfree, its nice to know there’s somebody else out there that shares my point of view.

For example if you know the possible range of an instrument (ie the DAX range from 11000 to 14500 over the past 5 years (increasing year on year)), and you keep enough in your account to cover that range, why use a stop. It eventually comes back up or down. Am I mad?
Cheers.


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  #17 (permalink)
worldbfree
Houston
 
Posts: 17 since Feb 2018
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tpredictor View Post
The problem with not setting a stop loss is that the longer you hold a position the more your returns will mimic the market returns. If you think about it, if place a trade at the beginning of the year and close at the year, over that year, your returns will match the market returns. This same principles applies on all time-scales. For example, if you open at the start of the day and close at the end of day then your returns must match the market returns over that period. You may do better due to leverage or if you hold positions short but that is all.

As for systems that do not set a stop loss, if you are able to adjust the leverage then it may work but generally it will give misleading returns. But yes, there is valid concern that over leveraging and improper use of stops is also a primary cause of losses. That is true too.

I'm not sure I understand your point. If you trade a system and you don't have stops, it doesn't mean your returns will mimic market returns. The system should define at which point you exit the position. The last quarter I traded my system I was able beat the market without having any stops.

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Last Updated on October 3, 2018


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