I Bet You Think You Are..., But Are You Really Actually Even Trading???!!

[graemenash]

A small stop loss does not mean you are less sure of your trade any more than a big stop loss means you are more sure.imho

Exactly. When I'm day-trading FX, I may use a stop as little as 10-12 points. Sometimes I might trade off a 4h chart with a stop as little as 25-30 points. But I am absolutely sure of every position I take.

That doesn't mean being absolutely sure of it being a winner, but being absolutely sure that I'm following my system, and absolutely sure of the point the market needs to trade to in order to prove the initial trade idea incorrect.

To me, sticking on a massive stop and living in hope that the market will reverse before hitting it is exactly what you do if you're uncertain of your position.

 

[new_trader]

Actually, it's all a gamble. ANYONE who thinks otherwise is in for a big wakeup call. But you have to stack the cards in your favor. I didn't say that I'm setting huge stops. I simply said that I set my stops "NEAR" resistance or support levels. "Traders" will most likely pick up on the fact that I'm trading with a trend. Once a price level reverses it's no longer a trend. AND I find that when I'm trading with the trend I have many more winning trades. But if I had set a "small" stop loss I would most likely be stopped out too soon.

Forums can be an entertaining place because there are so many "experts" with big egos. I was simply sharing what I do...that's all. Besides I think that setting small stops means you're less sure of your position anyway. It means that you're thinking you could be wrong and want to minimize your losses. This is a trader/gambler who is not accepting the losses! If you have more wins than losses...you're winning. Simple as that.

Posting opinions based on what you think is almost as bad as making trades based on what you think. Trading with a close stop means exactly the opposite of what you think.

 

[jamescummins]

It is a fact that stop losses can be useful. It is also a fact that their use neccesitates an understanding of the market you are trading, and the time period you are trading, that a surpringly high number of people here seemingly dont understand. I am not suggesting I am a more successful trader, and in fact I am not a trader, but I do understand the way professionals trade.

If you are a fund for example, you may be a long term investor in oil, with a price target of 200USD; in that case, you may well have a stop a long way off the market. But your stop inconsequently not likely to be hit unless your view was totally wrong, and then it becomes a damage limitation exercise. However, if you are a market maker, you may want to try and find stops very close to the market. If you are wrong, it will be very short term, and you want a guaranteed out of your position. Most people here are not using their stops for either purpose. If you are day trading, then why have a stop 1000 points out of the money? You know you got it wrong when you are 500 points out! If you are not sure you are wrong at that point, are you buying on scale down? If not, you clearly are not that convinced off you position, and should be well and truely out of it!

Stops are a tool that can be used, but it seems people are using them for the wrong reasons quite frequently. If you are going to put on a longish term position, which you will not be monitoring, stops are indispensible in my view. If you are monitoring your positions constantly - then what purpose are you using you stop for? Do people consider for example, joining the bid when entering a new long, and hitting the bid when exiting a losing short? Or are people using stops for this?

There are a lot of people here that are ignoring what is inherently sound advice, from far more experienced people. Markets are not an easy place to make money. The fact that there is even a debate as to whether or not it is gambling says it all!!! If it was gambling, why do people with Phd's generally make more money than spreadbetters here? Why do people do degrees and years of in house training? Markets are a function of supply and demand at the end of the day. Whether a roullette wheel stops on red or black is not!!! Basics.

Anyway, that is my rant over and done with, feel free to crucify it if you want.

 

[spanish89]

It is a fact that stop losses can be useful. It is also a fact that their use neccesitates an understanding of the market you are trading, and the time period you are trading, that a surpringly high number of people here seemingly dont understand. I am not suggesting I am a more successful trader, and in fact I am not a trader, but I do understand the way professionals trade.

If you are a fund for example, you may be a long term investor in oil, with a price target of 200USD; in that case, you may well have a stop a long way off the market. But your stop inconsequently not likely to be hit unless your view was totally wrong, and then it becomes a damage limitation exercise. However, if you are a market maker, you may want to try and find stops very close to the market. If you are wrong, it will be very short term, and you want a guaranteed out of your position. Most people here are not using their stops for either purpose. If you are day trading, then why have a stop 1000 points out of the money? You know you got it wrong when you are 500 points out! If you are not sure you are wrong at that point, are you buying on scale down? If not, you clearly are not that convinced off you position, and should be well and truely out of it!

Stops are a tool that can be used, but it seems people are using them for the wrong reasons quite frequently. If you are going to put on a longish term position, which you will not be monitoring, stops are indispensible in my view. If you are monitoring your positions constantly - then what purpose are you using you stop for? Do people consider for example, joining the bid when entering a new long, and hitting the bid when exiting a losing short? Or are people using stops for this?

There are a lot of people here that are ignoring what is inherently sound advice, from far more experienced people. Markets are not an easy place to make money. The fact that there is even a debate as to whether or not it is gambling says it all!!! If it was gambling, why do people with Phd's generally make more money than spreadbetters here? Why do people do degrees and years of in house training? Markets are a function of supply and demand at the end of the day. Whether a roullette wheel stops on red or black is not!!! Basics.

Anyway, that is my rant over and done with, feel free to crucify it if you want.

Well said mate.

 

[graemenash]

Nearly every newbie trader comes to the conclusion at some point that stoplosses are the problem, and finds themselves saying, if i hadn't used a stop, i would have made money!

I think someone on another thread somewhere likened that to driving a car headlong into a brick wall and then blaming the crash on the fact that you were driving a car in the first place. i.e I guess it's technically a correct statement but in another way demonstrates no awareness of the true underlying factors.

And that's the problem with stops (IMHO) - most people simply don't understand how to use them properly.

The real cause is that the vast majority of newbie traders are entering trades at less-than-ideal levels to start with, and then positioning their stop at a level based on the monetary amount they are prepared to risk, which in terms of the market itself makes no sense.

Stops should always be positioned at a level where there is a real reason, such as on breaks of S/R levels.

Speaking from my own point of view, the size of the stop you need should always be established before entering the trade. Determine at what level the trade is simply wrong.

From there, knowing how many pips/points/ticks/whatever you've got until your stop is hit, you can adjust your position size accordingly to ensure that whether you get stopped out -20 or -200, you're only losing a strict %age of your account (ideally <5%).

I can honestly say it took 3 years in the markets full-time before coming to these conclusions (prior to that I thought strike rate was the be-all-and-end-all) but they transformed my trading completely and hopefully they will be of help to someone somewhere...

 

[trader_dante]

At the end of the day it is my personal belief that people that don't use stops (because they don't want to get stopped out) are compensating for the fact that they basically have no real idea of how the market works, limited entry skills and a real fear of losing.

 

[littlemog]

How long can these traders last on live accounts? Wouldn't they blow up as fast as within a month, week....

Scary thought.

 

[shadowninja]

Depends on luck, I suspect.

 

[jamescummins]

Experienced traders may well not use stops though... If you are in a position, a stop may well not have the flexibility, and does not have the ability to look at things in context. Say you see hundreds of lots coming in selling just above your stop, you as a trader may well then take a different course of action to your stop. You might think, oh, that's a lot of selling, if any more comes in it could collapse, and I dont think it is going away, so I will move my stop up to the market and offload it now. This is potentially moving your stop tighter than it was initially set, because you are acknowledging the risk of your view being wrong has changed. No problem doing that, it is wise trading. Equally, you may see every offer disappear, and a load of buying coming in behind you, and you might want to amend stops differently then as well...
My overall point is that 'stops' as a point to exit a position are invaluable, and every single trader has them. BUT, it does not necessairly have to be something that you have defined in advance, and are inflexible on. The succesful traders can 'read' there position, and no when they need to exit. That is always going to save pips that new traders setting hard stops will not be saving, and it all adds up. Equally, traders have to be acutely aware that stops are not hard and fast anyway, even if yuo have an order in the market. Markets jump, regularly! If you watch metals, and I know it is the same with softs, you regularly see that not every price level is traded. This slippage is another thing that experienced traders are aware of, and will factor in.

In conclusion
The experienced, successful traders, no exactly what their position is, and what their risk is. They also know when market dynamics suggest things have changed, and act accordingly. Most day traders on here, and I apologise profusely for all those that are successful sound traders with a billion time more knowledge and skill than myself, dont fully understand what they are doing, and stops are just one part of that. It is not a damage limitation exercise, nor is it a worst case scenario, or any of the myriad other descriptions stops are given in my view. They are a tool. Not hard and fast in how they can be used, but inherently flexible. It is the flexibility of them that makes them tricky for the newer people here to comprehend I think.

Sorry about the waffling mini-rant

 

[new_trader]

At the end of the day it is my personal belief that people that don't use stops (because they don't want to get stopped out) are compensating for the fact that they basically have no real idea of how the market works, limited entry skills and a real fear of losing.

Succinct, precise and I completely agree. The things people say about stops...terrifying :-0

 

[Tenapenny]

At the end of the day it is my personal belief that people that don't use stops (because they don't want to get stopped out) are compensating for the fact that they basically have no real idea of how the market works, limited entry skills and a real fear of losing.

Couldn't agree more. I've not been trading for long and early on, fear had me moving my stops to stay in the game. Sometimes it worked, mostly it didn't so now I just let the stop do its job and move on to the next trade. Valuable lesson learned.

 

[nunrgguy]

Stops are pretty much essential for trading - the time WILL come when you have 20 losers in a row. If your account risk is limited to 1% of your equity per trade your drawdown will be 20% - something you can recover from. I believe it's important to know (long term) what your maximum drawdown is likely to be and if you can recover, in fact an important question to ask when setting out a trading system is, "What is the maximum drawdown I could feel comfortable with?".
Limiting your losses is aim number 1.
How's this for something radical? If your trade does not move your way IMMEDIATELY then close the trade. Sure you are going to have LOTS of small losers this way BUT you are more or less preserving your account balance until the BIG ones go your way. You then have problem number two which is having the balls to let your winners run, which is MUCH easier said than done.
Investing as opposed to trading...now thats a different matter - I don't know what kind of, if any stops the Warren Buffets of the world use as they hold onto a stock pretty much through thick and thin but that's not Forex, Commodities or spread betting, that's buying a significant portion of a company.