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Taking loss cutting losers managing positions HOW?
I wanted to start a thread on the forum dealing strictly with loss and how you go about determining when to cut a loss and or adding to a losing position or positions as well as are you using discretion or is it mechanical?
I would think that traders would dedicate more time space and energy into taking losses more than even taking profits of getting a good entry. Anyone can click a button and take a profit. Anyone can click a button and get long or short a trade but how you deal with loss and how you actually take your loss is one area of trading that very few if any actually talk about them.
I am net profitable and not a day goes by usually where I am not up or net positive on my account a significant dollar amount in the green however there are lots of ways that I can still improve not giving so much back to the market in the form of trade losses.
I took the name cutloss to reinforce daily how I need to cutloss and how in order to size up properly and maintain an account that does not blow out that you must cutloss!
1. the easiest way to cut losses is to have a daily loss limit. You set it and forget it and as long as your account is online or on a server with instructions then it will liquidate all of your postions to get you flat at a certain loss limit that you choose. This is a fantastic way for beginners to utilize this function and you SHOULD do it in demo so that you do not cheat yourself in demo!
the negative of this is that if you add to positions or decide to hold then you can be liquidiated which is the point anyway but you might pay more in fees to get back into the market after you hit your daily loss limit. which also begs the new question of .. does a daily loss limit mean you stop trading??? for me it does not. Usaully it allows me to get a better entry later.
2. stop loss per position
3. stop loss based on average price
4. technical mechanical exit
5. time stop based on time that you are in the trade or time in a loss (can get dangerous if fast mkt against you0
there are a ton more but feel free to write whatever ideas you have and share them because it is true the only thing we can control is when we enter and when we exit!
Have a great day
Can you help answer these questions from other members on NexusFi?
Feel free to use the term.. a friend of mine utilizes this method for his stop loss distance.
my friend decides his stop loss amount based on the largest bar on the chart since the open up until he makes his trade. SO if it is a 1 minute he will look at the
largest 1 min range bar before his trade and this is his trailing stop loss amount but wait there is more! he then counts back from the bar he made the trade on from teh open and uses this as a multiplier for his biggest bar range. so lets see an example.
so today in the SP 500 the ES june 2021 as an example. lets us use the 1 minute as an example
starting at 9.30 am ny time. we will take a trade at 10.30 am and it will be a mkt buy right at 10.30 so we need to set our ATR to 30 because 30 minuts transpired this number needs to be close not exact.
the 30 atr on the 1 minute on the bar we placed a trade on is
2.04 so we multiply the largest bar since we took the trade x the atr x number of bars back from where we took the trade as a multiplier. jsut use th tens place so round down and up normally
At 10.30 AM 4197.75 was at the bar OPEN!
Looking back to 9.30 the eyeballed largest range bar was 4 points.
so we take 4 x 2.04 rounded to 2 = 8 point as out trailing stop. so 4197.75 -8= 4189.75 is our initial trailing stop on a trade off of the 1 minute chart at 10.30
now once the trade is in profit by the atr multiplier we then use the original bar lenght as our trailing stop amount and this does not change. ]
so long at 4197.75 with an initial stop loss of 4 (largest bar since open) x 2 (30 period atr of the 1 min. bar since open 2.04) if this was 2 mins after the open then you would use the 2 period 1 min atr. I will do this one in a minute.
our intial stop loss is then 8. when and if the market moves up to into profit by the atr multiplier then we move up our stop loss trail DOES NOT NEED TO BE A TRAIL that is up to you.
then you move the stop loss up to 4 which was the biggest bar since the open on the 1 minute es chart up until 10.30 so at
4199.75 the stop is changed to 4 the biggest bar ! and thats is.
Lets do 2 more.
es on 5/25/2021
3 minutes after the open. we buy.
this time we are using the closing price of the 3 minute. this is again a choice up to you but i am changing it for an example.
Price was at 4208.25 at close of 3rd bar
largest bar before and including the bar you are on! when you make the trade! include that bar in your biggest range bar computation !
3.5 is our range bar now we need a 3 period atr of the 1 minute chart for our multiplier.
teh 3 period atr on the bar we took our trade is estimated or eyeballed to be 2.68 so 2.6 is our multiplier
2.6x3.25= 8.45 points or 8.5 so that would be our initial trailing stop or hard stop price.
4208.5-8.5= 4200 is our hard stop.
if the market goes into profit of 2.6 points our multiplier or the 3 period atr then we move the stop trail or hard stop up to the largest bar so in this case it would be
3.25 points once the mkt touches 4210.75 = 4208.5+ 3.25= 4210.75 so at this point your stop is now set to the largest bar or 3.5.
lets do a 1 minute bar at 11.30 am in the es on 5/25
the price was 4188.75 at the close.
the mkt has been open for 2 hours or 120 minutes. our atr period is 120.
the 120 period atr is = eyeballed with a cursor 1.91 so 1.9 is our mutliplier.
the biggest 1 minute bar between the open and our trade was/is 3.75 points at 9.45 am
so our initial stop loss is 3.75x1.9= 7.125 or 4181.625 or 4181.75
now if the market move up by 1.9 (2 points) then we move the stop up to the largest bar since the open and our trade which would be 3.75 points
so? 4188.75 + 2= 4190.75 move stop up to largest bar so 4190.75=4187
this is giving you a dynamic stop that takes into account the atr up to your trade entry while incorporating real time largest volatility or range of the same time frame bar that you are trading.
and it then once you are in the clear it moves the stop loss up by reduction when in profits.
this can be done on a 5 minute or 15 minute as well. i will do a 5 minute 1 next.
lets say we take a trade at the close of the 5 minute 10.20 am bar. we go long
at 10.20 the bar close was = 4197.50 we go long.
the largest 5 minute bar since the open is = 5.75 ROUGHLY EYEBALLED looks like 9.45 am bar
the number of 5 period bars since the open and open of our trade is 10.20 - 9.30 = 50 minutes so it would be 10 5 minute periods so our ATR uses
a 10 period to get the atr on the bar we took the trade.
this number is 4.16 = 4.2
our atr multiplier is 4.2! this is also the profit point at which we will move our stop up to the largest bar amount
so 4.2 x (largest bar since trade= 5.75)= this is 4.2x5.75= 24.15
our intital stop and trail would be 4174.35 yes it is very large but it works apparently.
if the mkt moves up to 4197.5 plus 4.2= 4201.75 then you move the stop up to the largest bar amount.
this would be 5.75 so at 4201.75 the stop is moved up to 4195.5 and trailed or hard stop.
this is another example of what I mean he calls the SMART STOP.
lets do 1 more 5 minute. lets do 1 near the close of the day say the close of bar 1440pm or 2.40 pm or how many 5 periods from the open
well 10 to 2 is 4 hours and we have 2 30 mins so 5 hours and then 10 mins again none of this needs to be all that exact but it should be close so i get
310 minutes divided by 5 =62 is the atr for your atr period moving average.
4189.50 is the mkt price at the close of the 5 minute 14.40 bar
largest bar since open = 7 popints again rough eyeball small chart
7x 3.4 (3.39) the 62 period atr at our bar! 23/8=23.75 i round down for a fill of a tick usually
so the intial stop in this example is 4189.5-23.75= 4166 is your trailing stop or hard stop
now if the mkt moves 3.5 points higher our atr multiplier we then use the largest bar as out stop.
so 4189.5 +3.5= 4193 and our stop is moved to 7 points below the price or the largest bar so 4193-7= 4186 is our trailing stop .
hope this helps you the intial stop out is usually the one that keeps you out of the trade.
you can vary this however you want. if you want less stop distance then if trading the 1 minute use half of the atr multiplier
or just us the atr at your moving average period as your stop to keep it really simple and tight or
just use the largest bar since the open for super simple.
or the largest bar x any period atr you want at the point in time you are making the trade
so lets do a super simple one here on the 5 minute.
I set my ATR to a 12 period on the 5 minute chart,
I do not change this atr it runs all day at 12 periods. this is my multiplier.
lets us the 14.40 example.
at 14.40 the 12 period atr is 2.77 or 2.7
the largest bar is still 7 points so 7 points x 2.7= 19 points. your initial stop loss would be
19 points lower. now when the market gets you into 2.75 points profit you drop the multiplier and move the stop up
to largest bar since the open or 7 points and trail with that.
or you can just keep using largest bar by itself so 7 points
or you could double the largest bar or 1.5 x largest bar or 1/2 largest bar it is all up to you but that largest bar can be a very good volatility multiplier for the entire day if you want
If you decide to use the smart stop today live or demo come back here and post what you thought. Are you seeing it work ? Did it work? Did you make any variations even slightly that might improve. We dont want to change too much or give it too many parameters but collaborating and posting real results from our eyeballs helps everyone trying to stick out a trade. Again why would I post ideas on a public forum that I believe work for me... because I need and want liquidity. The more people the thicker the book the more trades the better that will be for me and all of us in the short run and long run.
Have a great day. I am buying dips in the russell 2000 again. Becareful in es as far as dips today looks like it could surprise you with some big sells but overall I am bullish.
Try this smart stop method or a simple variation of it and might be glad you did. Try it in the micros first that is what they are for..use the micros to test strategies live. Now one thing that wasn't talked about with the smart stop was that if you are picking a good buy point or even a decent buy point and the mkt is in an slight uptrend then you should be very safe without a stop out worry with this method especially initially.
I trail a stop based on a simple ATR stop. The settings are not that critical, but I use 1 or 1.5 ATR from a moving median. I would not emphasize the exact settings, which have to do with your risk tolerance and are pretty individual.
This trailing stop idea -- or ANY idea where you trail a stop up or down as your price moves -- will only work if you are (1) a trend trader, because it depends on price moving in long(ish) trands, and (2) you are right about whether price is in a trend or not, because in periods when it is more ranging, trailing your stop by any method will get you whipsawed to death. In a ranging market, you want to take profits or losses quickly before price reverses.
So I agree with you that controlling your losses is one of the most important things, but being right in the trade in the first place is the other side of it. In other words, entries matter -- specifically, whether you enter at all, if you are only going to be aiming to take advantage of trends while avoiding shorter up-and-down ranges. But what kind of market conditions you are in is the basic question, isn't it?
But to answer your question, if I judge price is in a trend (leaving aside how to do that), I'll trail a stop based on a somewhat low multiple of ATR, and get out semi-mechanically, keeping the stop just a little farther from price than the strict ATR, based on my read of volatility, but always being taken out by stop when price reverses. An alternative is to be taken out by a target, which works better in a range than in a trend, where you want to just ride it once it gets going.
Most platforms will have a built-in trailing ATR stop, or some variation on Super Trend, and those work fine.... if you can tell whether you're in a trend or not, which for me is a discretionary question. If you're not in a trend, you'll get slaughtered with this method.
Also, I never, ever decide that I don't want to take a loss or that I don't want my stop to be hit and move it to prevent it being hit. Taking losses by rules that I don't fool around with while in a trade has been a lifesaver, and is just routine for me now. Stop being hit is no problem, it just means I should be out, and so I am.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Great ideas and another good example of how to manage a loss. However in trading one of the best pieces of advice I have been told was never use the word ONLY. The smart stop works in all kinds of market conditions and allows quite a bit of wiggle room especially on initial entry.
IN TRADING
NEVER SAY NEVER
NEVER SAY ONLYy
NEVER SAY ALWAYS
I will post a live trade today in the micro es using the smart stop method and we will see how it does as far as stopping out. Nothing always works. So a stop out could happen. As always I will post time and sales with it so you know it is a live trade. If you have some more ideas on stops or losses or managing positions post them up.
Taking losses happens or should happen all the time. It actually means you are following basic trading strategy. Just like in poker or black Jack there is a basic strategy! Same with trading. Take your brain out of guessing what its gonna do and focus more on basic strategy and basic strategy means you take losses and you are proud of following basic trading strategy. I will post at the end of the day today my gains and my losses by number so we can see how when you are an active trader you must learn to love loss and hate to make money.
This thread is not about entries. It is about taking losses. It is about negative exits in the market. People that tout the idea that entry is the most critical issue in basic trading strategy must not need to ever take a loss or use a stop. No one and I mean no one not even me is that good at pegging the bottom tick so we use a stop loss for when the mkt proves us wrong on our idea. That's all and that's why having a great negative exit plan will take a lot of pressure off the entries but for this thread let's talk about
I think it was BobWest that said in another post that where the stop is going to go is a huge factor in deciding to take a position. If its too close or far, maybe I don't take the trade yet. I think there are a lot of ways to gauge where but basically you want it out of the whipsaw action. I want it in a place that if the market reaches the point, its a good bet that I'm wrong on direction.
I am currently short the Russell and here's my stop, the blue line
stop
I could have put it to the top of the big candle but is too much IMO. I try to put it 2 fractals back, that usually works out well.
If I'm using clouds which is rare, I will use the cloud or the 2 faster moving averages sometimes, so many ways to do it.
Anyone remember moving your stop because you were sure you were right? LOL
Coming, they can't be denied. Going, they can't be detained.
here's another current example in gold, adding a contract at each green line and moving the stop each time. You can see now where the blue line is. When folks buy gold they really buy it (and when they sell it...)
gold add
Coming, they can't be denied. Going, they can't be detained.
