Hard Stop Placement – The Great Contradiction?

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JDJD88

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Hard Stop Placement – The Great Contradiction?

Will a seasoned trader please…please advise here?

After 3 years of research and full time trading, I remain troubled (by apparently what continues to trouble even seasoned pros I am told).

Here’s the issue: We are told to set a hard stop, for example outside of a price channel or at a support level, etc. as a “hard stop. This is to supposedly allow the trade “enough room” to develop and prevent you from getting stopped out too soon.

YET – we are ALSO told by Pros – NEVER let price hit your hard stop but ‘manage the trade” – and get out sooner – at something far less than the “hard stop”. Again – “NEVER let it hit the stop you just placed at the most recent swing high or closest support level or channel line, or any place else your system "rule" told you to place it.”

So…won’t this result in premature exits? After all, if we never let it hit the hard stop, we are never giving the trade “the room it needs to go through it’s ups and downs”.

What are we to do? Use the “set a stop just outside the price channel” or just above the last most recent swing high” etc etc OR – do something else?

And yes - someone might respond that - it's whatever you are comfortable with...or...you must always manage your trade (of course!)...or there are no hard and fast rules....

The BUT is that there are Pros who make this a hard and fast rule, yet the wisdom of each of these rules are OPPOSITE. Unless I am just missing something.

Any specifics and guidance would be greatly appreciated. Thanks for your time and wisdom.
 
After a while you will have enough experience to know when the price action just isnt developing in your favor and to get out as you will inevitably will be stopped. obviously this takes alot of experience and immense discipline..so good luck!
 
N Rothschild said:
After a while you will have enough experience to know when the price action just isnt developing in your favor and to get out as you will inevitably will be stopped. obviously this takes alot of experience and immense discipline..so good luck!
Click to expand...

So true.

I still have the 'deer in the headlights' thing going on.
 
JDJD88 said:
Hard Stop Placement – The Great Contradiction?

Will a seasoned trader please…please advise here?

After 3 years of research and full time trading, I remain troubled (by apparently what continues to trouble even seasoned pros I am told).

Here’s the issue: We are told to set a hard stop, for example outside of a price channel or at a support level, etc. as a “hard stop. This is to supposedly allow the trade “enough room” to develop and prevent you from getting stopped out too soon.

YET – we are ALSO told by Pros – NEVER let price hit your hard stop but ‘manage the trade” – and get out sooner – at something far less than the “hard stop”. Again – “NEVER let it hit the stop you just placed at the most recent swing high or closest support level or channel line, or any place else your system "rule" told you to place it.”

So…won’t this result in premature exits? After all, if we never let it hit the hard stop, we are never giving the trade “the room it needs to go through it’s ups and downs”.

What are we to do? Use the “set a stop just outside the price channel” or just above the last most recent swing high” etc etc OR – do something else?

And yes - someone might respond that - it's whatever you are comfortable with...or...you must always manage your trade (of course!)...or there are no hard and fast rules....

The BUT is that there are Pros who make this a hard and fast rule, yet the wisdom of each of these rules are OPPOSITE. Unless I am just missing something.

Any specifics and guidance would be greatly appreciated. Thanks for your time and wisdom.
Click to expand...

These are easily the best and most influential posts I've ever read in this forum....almost 6 years ago :-0

SOCRATES said:
Some time ago the question of stops was being discussed.

Again, when I commented incisively on it, it served to stimulate the rowdy element as well.

Without going into deep details I explained that efficient traders use very tight stops because efficient traders get it right many many more times than they get it wrong, that is why they are efficient traders, OK ?

Therefore efficient traders are surprised and shocked when they get it wrong. The fact that they use very tight stops immediately limits losses.

Inefficient traders are apt to use wide stops and some blighters none at all !
They now begin to argue, yes argue, that to use a wide stop is the right thing to do because it allows a position to "breathe" and other nonsenses. When it is pointed out that wide stops used by inefficient traders who get it wrong often and really ought to fiercely control losses, they get abusive, or, begin to argue.

That is why I have so many posts under my belt. I have tried in the past to illustrate lots of ideas. These ideas are immediately recognised by a few who go on to use them beneficiallly which pleases me enoromously. The great majority see fit to argue and argue and do not progress.

I am accused of being among other things, a charlatan, a wordsmith, an autocrat, etc.,

The problem is that a lot of people forget about the message being delivered to them and only concentrate on the way the message is delivered and so miss the content altogether.
Click to expand...


SOCRATES said:
OK, I will explain.

The single most important thing you have to concentrate on is limiting losses.
You do this by using stops.

As you become more proficient at picking winning moves you have to tighten your stop loss policy.

Limiting losses to the absolute minimum is the key. All else is peripheral.
Now that is a simple statement.
Click to expand...
 
The flip side to that is that if stops are too tight, you guarantee that they got hit.

It is not about being right/wrong about a trade. A 2 tick stop on CL will get hit a hell of a lot, regardless of how right your trade premise is.
 
These ideas are immediately recognised by a few who go on to use them beneficiallly which pleases me enoromously. The great majority see fit to argue and argue and do not progress.
 
So NT are you saying that you believe that there is only one way set your stops - and that it is applicable to all markets, all strategies and all conditions?
 
JDJD88 said:
Hard Stop Placement – The Great Contradiction?

Will a seasoned trader please…please advise here?

After 3 years of research and full time trading, I remain troubled (by apparently what continues to trouble even seasoned pros I am told).

Here’s the issue: We are told to set a hard stop, for example outside of a price channel or at a support level, etc. as a “hard stop. This is to supposedly allow the trade “enough room” to develop and prevent you from getting stopped out too soon.

YET – we are ALSO told by Pros – NEVER let price hit your hard stop but ‘manage the trade” – and get out sooner – at something far less than the “hard stop”. Again – “NEVER let it hit the stop you just placed at the most recent swing high or closest support level or channel line, or any place else your system "rule" told you to place it.”

So…won’t this result in premature exits? After all, if we never let it hit the hard stop, we are never giving the trade “the room it needs to go through it’s ups and downs”.

What are we to do? Use the “set a stop just outside the price channel” or just above the last most recent swing high” etc etc OR – do something else?

And yes - someone might respond that - it's whatever you are comfortable with...or...you must always manage your trade (of course!)...or there are no hard and fast rules....

The BUT is that there are Pros who make this a hard and fast rule, yet the wisdom of each of these rules are OPPOSITE. Unless I am just missing something.

Any specifics and guidance would be greatly appreciated. Thanks for your time and wisdom.
Click to expand...

My opinion, only, Ok? Everyone has to do his own thing but

Depends what kind of trader you are. If you are away from your computer for a while, only checking you trades now and then, then you should put your stop where you are willing to take the loss and no further, for what are, to me, obvious reasons.

If you are paying close attention to the screen then you should have something there in case of a computer breakdown etc., but you should be prepared to get out manually if you are in danger of losing any gains that you may have made or, if you have no gains, then at a point near enough to be able to take the loss without worry. In fact, you should be thinking of your next step because this trade will be going wrong and you may feel it in your gut. I do not think that it is necessary, nor in the trader's best interests, from the stress viewpoint, to give a trade to much room to breath or to stay in it if it does not move within reason.

Choke it to death and bury it! :) On to the next!
 
new_trader said:
These are easily the best and most influential posts I've ever read in this forum....almost 6 years ago :-0
Click to expand...

"I am accused of being among other things, a charlatan, a wordsmith, an autocrat, etc.,"

Well, he got that right. He was, also , very unpleasant to those who contradicted him.

Still, there is never much new under the sun and there have been no fresh developments since he wrote that, that's true.
 
Splitlink said:
Well, he got that right. He was, also , very unpleasant to those who contradicted him..
Click to expand...

Possibly a case of being cruel to be kind, but I'm sure he enjoyed dishing it out to dunces. He once called me an intellectual pygmy :LOL:

the zoo are extremely lucky that he chose to tolerate posting here for so long. Mr Socco certainly had his ducks in a row.
 
the hare said:
Possibly a case of being cruel to be kind, but I'm sure he enjoyed dishing it out to dunces. He once called me an intellectual pygmy :LOL:

the zoo are extremely lucky that he chose to tolerate posting here for so long. Mr Socco certainly had his ducks in a row.
Click to expand...

Well, at least, you got to be an intellectual. Looking at you, I would have had a worm's eye view. However, his opinions did not worry me me much.

We are both still here, aren't we?
 
The thing with stops is they're only part of the story of a trade. Alright, they are the exit, which is the most important element, but to develop as a trader, you also need to see what happens within the trade. A trade is a process, not an event.

As a signpost to what I mean, I notice that my profitable trades are winners from the moment I open them or the entry order triggers. It's very rare for any trade of mine to get halfway to its stop and then resume and hit my original target. If they do resume and get back to break-even, they meander around there for an eternity and maybe I make a bit, maybe lose a bit, it's random and unproductive. See your own trades and with insights like these, you will see when it's no longer worth persevering with a trade at full size and indefinitely that still hasn't hit its stop.
 
JDJD88 said:
Hard Stop Placement – The Great Contradiction?

Will a seasoned trader please…please advise here?

After 3 years of research and full time trading, I remain troubled (by apparently what continues to trouble even seasoned pros I am told).

Here’s the issue: We are told to set a hard stop, for example outside of a price channel or at a support level, etc. as a “hard stop. This is to supposedly allow the trade “enough room” to develop and prevent you from getting stopped out too soon.

YET – we are ALSO told by Pros – NEVER let price hit your hard stop but ‘manage the trade” – and get out sooner – at something far less than the “hard stop”. Again – “NEVER let it hit the stop you just placed at the most recent swing high or closest support level or channel line, or any place else your system "rule" told you to place it.”

So…won’t this result in premature exits? After all, if we never let it hit the hard stop, we are never giving the trade “the room it needs to go through it’s ups and downs”.

What are we to do? Use the “set a stop just outside the price channel” or just above the last most recent swing high” etc etc OR – do something else?

And yes - someone might respond that - it's whatever you are comfortable with...or...you must always manage your trade (of course!)...or there are no hard and fast rules....

The BUT is that there are Pros who make this a hard and fast rule, yet the wisdom of each of these rules are OPPOSITE. Unless I am just missing something.

Any specifics and guidance would be greatly appreciated. Thanks for your time and wisdom.
Click to expand...

Well they are human (I’ve been told) so if they can move the market and hit your stop they will. Maybe two stops? …one a mile away to keep the pot lickers at bay and the other in your finger but then you got the discipline thing:( Maybe that is what mr Socrates was meaning when he said efficient traders are shocked when they get it wrong… they know when all the stop running and shenanigans have finished and the market is ready to move. This for day trading but if you mean longer term trades then I don’t know maybe before you take the trades you could check your stop doen't land in any obvious areas like channel top/bottom fibs ect? ...not easy

i only trade the ftse ...no knowledge of forex ect so if i'm talking rubbish just ignore me:)
 
There's not really a contradiction in the first post. Nor anything wrong with Socrates post on stops imo. People are at different levels in their trading and have different trading philosophies.

I think most daytraders (I don't know about longer terms ones) will enter at a price and time that they think price will very quickly go into profit and not look back. Isn't this the aim of entry?

It's very hard to get both price AND time bang on, and the size of your stop in some way reflects that, it reflects how far off you are from nailing entries. If you were truly exceptional at picking the right entry, you could get away with a tiny stop. Perhaps not much more thn the spread.

For those like myself who aren 't quite so exceptional, you narrow your stop down as far as you can to the point where it doesn't hamper your profitability. So a 2 pip stop on EUR/USD for me would result in me getting stopped out a lot, even on winning trades, because although I might get in at a decent price, I may be 2 pips off perfection, or the timing is just a little off, and it's not ready to move yet. So therefore I might use a 10 pips stop which allows me some room to account for the fact that my entry isn't precise enough. And in this room I've given it, I should manage the trade and try to get out for profit or loss without that 10 pip stop being hit.
 
It's always nice (well, for me) to read Socrates posts. After a day of poor trading (sloppy entry, trade mgmt and exit) the re-posts about stops are a welcome reminder of how it should be.
 
I very much agree with Shakone -- the size of your stop should be commensurate with your accuracy.

Another way of seeing it would be to check the average MAE on your trades and either adjust your stops to reflect the range, or wait just a little bit longer before entering.

Remember -- you choose your risk. There are plenty of ways of making a trade work with very tight stops, no matter the market or strategy.
 
It's like this: this assumes you are trading with more than 1 lot.

A stop is not your exit. A stop is when you have lost all your risk.

At some point between your entry and your stop you have a pre-set decision point. If, according to your criteria, you are wrong, you have choices. You either resize; exit wait resize and re-enter; or go looking for another trade altogether (albeit at smaller size).
When you are right you do the same but in reverse.

Once your stop is hit your risk is gone and you have to go dipping into the pot again.
 
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