Are stops really a good idea?

[zupcon]

That's not what happens to me on a tight stop. When I set a stop tight it is some magic number like 3.5 cents under yesterdays close price. Apparently a bunch of newbies like me are pick this same juice stop. Crowd statistics gets you. Then along comes the market maker, (a guy named 'chicky' on the floor of the exchange) or some 5 million dollar trading program at Goldman Sachs (using better market data than I have) and sees us flock of suckers. The top dogs gun our stops, picks up some cheep stock, and then the market turns on a dime and goes straight up.

If you have the statistical evidence to back up that claim, why not take the same trade as chicky ?

 

[bmaber]

its a very funny thing you...stops

at the end of they day, it depends on how you use them. you cant say they are good, or they are bad.
its where YOU place them and you who determines this.

over the yeard i have noticed though that had i not had that stop loss on, i would have eventually been up by huge amounts, as the market played out to where my intentions where.

However stop loss and leverage can be used in a clever way to win nearly always. e.g. (i will give a example with a spread bet firm, not direct access futures, as most guys here prob do Spread betting)

you have £100,000 in a SB account.
Dow is at 8,000. you beleive it will go to 9,000 over next few weeks/month (position trade)

you decide to use the leverage and stop loss in such a way that you are VERY likly to win, unless a Black Swan event happens .... (theyve happned quite a lot recently ent they lol)

so you decide to use 1% of capital for leverage (£1000) and lets say you are with CMC markets -

so as i remeber back in the days, with £1000 you can open a position of £10 per point.

NOW - where do you place the stop loss? Ill tell you - you place it at ZERO value of your account i.e. you get stopped out if the funds in your account go down to zero.

this would like this ;

you have £99,000 free equity left : £99,000 / £10 ppoint = 9,900

so you have room for 9,900 points to place a stop loss...crazy isnt it. so lets just say you place it at DOW = 0 (so you will lose £80,000 if it collapsed to zero)

lets sumarise :-

Open position = Long £10 ppoint @ 8,000
Stop loss @ 0
account funds = 100,000

over the next few weeks...the dow fuking drops to 7000...people are crying, but your down 10,000...but one day over the next month it goes up to 9,000

you close your position for +£10,000

account value = £110,000 +10%

this will be met with alot of sceptism. Simply because it screams in peoples faces. You can only do this if you are comfortable with losing that ENTIRE 100,000 - and thus can be guarenteed to win, ONLY if u have the right Leverage

think about it.....
i havent tried it...but i have alot of theories. and this one is good.

The reason this is clever, is the DOW can't go to zero, the all time low for the dow is 40 and I have limit Buy order for all 30 stocks in at 41. So you are safe. 🙂

 

[cryten]

That's not what happens to me on a tight stop. When I set a stop tight it is some magic number like 3.5 cents under yesterdays close price. Apparently a bunch of newbies like me are pick this same juice stop. Crowd statistics gets you. Then along comes the market maker, (a guy named 'chicky' on the floor of the exchange) or some 5 million dollar trading program at Goldman Sachs (using better market data than I have) and sees us flock of suckers. The top dogs gun our stops, picks up some cheep stock, and then the market turns on a dime and goes straight up.

lool yes me too I seemed to be doing that, when the ftse screeched down and hit my stop to the tick and then shot back up is when I went 😡😡😡😡 right 40 it is 😡😡😡😡

 

[bmaber]

Why not just do what Chicky does

If you have the statistical evidence to back up that claim, why not take the same trade as chicky ?

I have noticed that most of the legendary traders, did a stint or two on the exchange floor. Or at least on the market maker screens at a major broker. As an exchange member "Chicky" gets market maker margins and the fastest data available. He also has a feel for the traders around him. But most of all he has years on the floor, perhaps if I can trade long enough not to go "Tapioca" I too will be able to sucker in and head fake the newbies.

Lets face it the market today is mostly a zero sum game, if there are huge winners in the market they are getting their money from some place, and I take it that it is the newbies like me.

It hit home when I ready about Andrew Lahde -- who in his famous retirement letter said:

I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

Well I am a Harvard B school graduate, and I think it will take me years of learning about markets not to get fleeced by the Andrew Lahde of this world. When you listen to his confidence you know this guy is on the other side of your trading screen making an 866% return. That is the inside guy killing the newbies like me.

Still I am intellectually stimulated by the markets, it is the last mystery to me. Forget Plato, or exploring space or solving cancer. I want to be a master trader, and if it takes me years I will learn. I self taught myself, genetics, electronics, programing and business and I did well at all of them, now the greatest challenge to date trading and winning in a zero sum game.

 

[bnaimy]

You could end up waiting several years for price to come back, or maybe even decades!!! Where is the good or profit in that?

I tottaly agree with you there tradergirl, it can take decades before price gets back that same level, if ever.

So here it goes, say it takes 1 year for the price get back to your breakeven.
In that 1 year you could have used those same money to generate income, now imagine you make 100 usd pr day on that amount pr day and u do that everyday.

So basicly its a dangerouse and careless way of doing it, and will mostl likely give you a very battered account. U might as well go to the casino with a trading mind like that.

I understand what you are saying, but it makes absolute no sense, u are locking ur capital for an unknown time that you could have used to actualy make something.

And using as stopp is a must in any trading, otherwise ther is no limit to what your loss could be, the human mind is not a machine, u will get emotionel with a huge loss, and will never be able to cover that position. I hear some say that if they dident use stops then they would have huge profits. But there is another side to that coin, if u where not using stops u would be even more scared and you would not be trading in that fashion to be begin with. So the results would not have been what you think.

Its very easy to go backtest things like these and try different scenairios, but its a dangerouse road to walk on, it will make give you false sense of securety beliving that this or that will happen, because on backtesting it works. Everyday is uniq in the marked, and so there is not way of backtesting it 100%.U can get close to it, but never 100%. I think its good toget a general idea of a trading method, by backtesting, but dont expect those results to be excat to the real thing when marked is live.

enough rant 😉

With regards
Bashir Naimy

 

[UKtradergirl]

You don't have to beat all the top traders to get a return trading. You just have to beat other amateur traders- there's plenty enough money in them for now 🙂.

 

[new_trader]

Stops are cool.

 

[Depth Trade]

Are car brakes a good idea?

Yeah you can get to the store and down shift, then shut off the ignition, but wouldn't you rather be in control?

 

[richi rich]

Bniamy

ill repeat my self again

i have never done that. nor will likely do so in the near future, ''unless i have made my millions, and am bored ****less, and want to play with my spare 10k or 100k cash i would otherwise use to buy my 15th watch in the future''

you get the pic.

like naseem talen spent a decade talkin about black swans, and people pissed on him for a decade, i am saying this is just a theory and it would work...but im gona repeat again, I havent done it, or wont do it unless im in the above position.

because as i said, im gna repeat again, 'who wants to hold like a muppet'' when you could have done some may things in the mean time

it was just a theory, an idea that seemd to sudenly come up on sunday evening out of the 1000's crawling in the back of my mind.

 

[bmaber]

I tottaly agree with you there tradergirl, it can take decades before price gets back that same level, if ever.

So here it goes, say it takes 1 year for the price get back to your breakeven.
In that 1 year you could have used those same money to generate income, now imagine you make 100 usd pr day on that amount pr day and u do that everyday.

So basicly its a dangerouse and careless way of doing it, and will mostl likely give you a very battered account. U might as well go to the casino with a trading mind like that.

I understand what you are saying, but it makes absolute no sense, u are locking ur capital for an unknown time that you could have used to actualy make something.

And using as stopp is a must in any trading, otherwise ther is no limit to what your loss could be, the human mind is not a machine, u will get emotionel with a huge loss, and will never be able to cover that position. I hear some say that if they dident use stops then they would have huge profits. But there is another side to that coin, if u where not using stops u would be even more scared and you would not be trading in that fashion to be begin with. So the results would not have been what you think.

Its very easy to go backtest things like these and try different scenairios, but its a dangerouse road to walk on, it will make give you false sense of securety beliving that this or that will happen, because on backtesting it works. Everyday is uniq in the marked, and so there is not way of backtesting it 100%.U can get close to it, but never 100%. I think its good toget a general idea of a trading method, by backtesting, but dont expect those results to be excat to the real thing when marked is live.

enough rant 😉

With regards
Bashir Naimy

I don't disagree. I have friend long QLD at 45 and now it is down at 25. At the time he was scalping for nickles, but unlike me he refuses to take a loss ever. I do have "uncle points" where I get out, a kind of wide stop. What I am saying is the tighter your stops the more you loose statistically IF you don't jump back in at a much lower level. I said before -- often the market turns at stop points locking you out and your stop turns into cheep stock for the experts.

 

[new_trader]

I don't disagree. I have friend long QLD at 45 and now it is down at 25. At the time he was scalping for nickles, but unlike me he refuses to take a loss ever. I do have "uncle points" where I get out, a kind of wide stop. What I am saying is the tighter your stops the more you loose statistically IF you don't jump back in at a much lower level. I said before -- often the market turns at stop points locking you out and your stop turns into cheep stock for the experts.

Learn to trade like an expert :idea:

 

[richi rich]

Bmaber

Im gna have to repat some **** again

That stuff i said, will only have to be done on INDEXES, and major ones for that
im tired ot typing the same stuff

 

[bmaber]

Are car brakes a good idea?

Yeah you can get to the store and down shift, then shut off the ignition, but wouldn't you rather be in control?

Well there is an example, when I learned to drive the first time on a race track they laughed their butts off, because I road the clutch and the brakes "like a scarred little girl" after few hours of instruction, I learned that it is counter-intuitive, but you brake on the straightaway and accelerate in the turns.

Like in the markets I am learning about chasing the market, at first you see a rising stock and you want in real bad. After it turns around and bites you learn a bit of penitence and even to buy on a falling stock retrace, this also is counter-intuitive but safer.

I think tight stops are like that, they sound logical, but in fact they might lower return.

 

[Paul71]

Have you ever noticed in Las Vegas that even on odds of 51% (blackjack) the house is making a killing? The reason is this; you trade your valuable and limited money, that you only have so much of, for worthless chips. The casino has lots of plastic chips, in fact an endless supply. As the game proceed both you and the house swing up and down, but at some point, if you play long enough, statistics say you will temporarily be down so low you can buy no more chips. You are bust, and you go home broke and the casino has ALL of your money. If you could have played on, statistically a new swing upward would be likely, but you must stop when you are broke. This changes the odds way in the house's favor.

I set up a simple simulation on a computer with a game 60% in my favor. It would randomly pick number 1 - 10, if it was 1-6 I win. If it was 7-10 the house wins. It turns out if I don't have enough money to start I will go bust before the enviable win that 60% odds will eventual give me.

In the book Trade Your Way to Financial Freedom this same experiment is listed as proof for money management. But if you think about it, a stop loss order is the same concept as trading too much of your account. With a stop loss you are tilting the odds in the house's favor. A stop can be though of as a mini "going bust" where you are forced out. A stop, in effect, is a forced sell low, after you bought high.

I ran a simulation on a simple breakout trading system. The data I used was from a very volatile and down trending market, but the system made money. Then I programmed in a stop loss. The tighter the stop, the more the system lost. It was not until I set the stop at 2.5 times the average daily price moment, that I got no hits on the stop, and the system became profitable again.

Are stops really a good idea? I would like to hear from experienced traders.

Are stops really a good idea? There's got to be a point when a trader says to themselves that they misjudged the market. Eod, they are an order type, market buy, limit sell or whatever can be just as useless as a stop if not used appropriately.


Edit: Just to clarify what i mean by 'appropriately', any order type used by any trader must fit in with their own proven and profitable strategy.

 

[counter_violent]

Slightly off topic .....but if you overlay a grid on price and this grid doubles at each increment then before you get anywhere near 10 quid a point...you will have a vast range in place where price can operate.

Each increment £1
Each instrument Take Profit when Price hits 50.

eg first interval is 50 then 100 200 400 800 1600 assuming profit and loss trades are equal....then you will win 50 pounds for every 50 thats lost....the wins top up the account balance on a reagular basis ....and the negative side add 1 entry at each interval that the trade goes offside.

It is important to double the grid size and not the stake size at intervals in accordance with the dynamic nature of price movement...


There is your starter....but it is not anywhere near complete 🙂 now to move it forward can take many routes....lets see what comes forth on the possitive side ...and what on the negative side.

 

[richi rich]

well if any of you folks has a spare 100k or so to burn, try out what i said.
but obviously with some right sense of direction (Long)

once its on, turn the trading platform off, go outside to your beemer, roll down the covertible top, turn the music up, pick up ur girl, cruise round town singin along to

Shawty had them apple bottom jeans
Boots with the fur
The whole club was looking at her
She hit the floor
Next thing you know
Shawty got low, low, low, low, low, low, low, low low low low low low low low
low low low low low low low
low low lowlow low low low low low low low low low low low wlow low low low low low low low low low low low

now some old folks gona come hav a go at me...

 

[bmaber]

Trade like an expert

Learn to trade like an expert :idea:

I came here to learn just that, I read, I trade I chat, do you have any ideas on how I could learn to trade like an expert faster? 80% of mutual funds don't outperform the S & P 500 index. Those mutual funds are run be experts. So I need to learn how to trade, better than an expert. 😀

Albert Einstein lost all his Nobel prize money in the markets, so I also need to be smarter than that guy. 😢

Seriously the only way to learn to trade seems to be to read a lot, trade small and be ready to handed your butt often. A mentor helps too, but they are in short supply unless you work in a firm south of tri-beca.

 

[koolblue]

Trading without a stop, is like sex without a condom! You only have to be wrong once to get knocked up!

 

[richi rich]

have you ever heard the phrase

''You have to pay to play''

the only way to learn is to trade. read books whatever, but trade.

as for the mutual fund guys, yea mate they are not trying to get super returns. like some hedge funds with returns of 30%, but the owners are still minted to the bone. think why. its not that hard.

you dont have to be smarter than einstein.

 

[UKtradergirl]

If i had a spare 100k i didn't know what to do with i'd just put it in a bank account. Even at a modest 4% a year that is £4000 profit... and no big drawdowns (unless bank goes bust i suppose!).

And if i was doing something out of boredom (as suggested earlier) i wouldn't be buying and holding, i'd be scalping 🙂.