Keeping things simple.

[darktone]

At last, i got some sort of video cobbled up. VLC to capture the screen and videopad to chop it up. If theres an easier way please let me know cos it was a trip to get this far!

The video shows a loss being taken. Was the second entry attempt after missing the first opp. The worst case scenario for this little wiggle was -10, I took -2.9.

The video is basic, no commentary or sound but it doesnt really need imo, just to convey the gist of the method.

Try not fall asleep!

managing a loss with limits

 

[darktone]

Heres a screenie of the rest of the days scratches. 9 attempts in all for touch under 12 points in total loss. Managed to get one off at 98 with a modest (for me) target +50.

Cheers
D

 

[BeginnerJoe]

I am confused. Why are you trading for loose ?

 

[darktone]

I am confused. Why are you trading for loose ?

loose? You mean loss? Im not, these are the usual sort of scratches i take getting a position on. A cost of doing business.
It was about a sloppy a day ive had in a while so a nice example imo of keeping em small.

 

[BeginnerJoe]

loose? You mean loss? Im not, these are the usual sort of scratches i take getting a position on. A cost of doing business.

This reminds me of the 3 pip strat from another thread. Maybe it would be cheaper and less work with a wider stop.

 

[darktone]

This reminds me of the 3 pip strat from another thread. Maybe it would be cheaper and less work with a wider stop.

Link it, be good to see although i cant see how it could work it they are using hard stops.

Same goes for anything and anyone, if you know of a better way. Post it up.

Am off out now, stuff screen watching!

 

[Splitlink]

Link it, be good to see although i cant see how it could work it they are using hard stops.

Same goes for anything and anyone, if you know of a better way. Post it up.

Am off out now, stuff screen watching!

I don't think there can be a better way, This is about as simple an explanation as it gets.

 

[BeginnerJoe]

Link it

As you like links, here's one I got specially for you:

http://www.trade2win.com/boards/edu...48-learning-trade-youtube-18.html#post2211782

 

[darktone]

As you like links, here's one I got specially for you:

http://www.trade2win.com/boards/edu...48-learning-trade-youtube-18.html#post2211782

Cheers Joe. Will try and watch both of them today. What are the main point of the videos that you want to convey?
Can you link to that '3 pip strat' thread too please.

Cheers
D

 

[BeginnerJoe]

Talk to Mr Fox about his 3 pip strat. He swears it works: http://www.trade2win.com/boards/psy.../180300-risk-reward-question.html#post2208764

The reason I thought the 3 pip strat was relevant was that I thought it had the same characteristics as the trades in your video in that they got knocked out frequently.

Only one of the videos is for you. I had the impression you were looking for a strat, and there was a strat in the video.

 

[darktone]

Talk to Mr Fox about his 3 pip strat. He swears it works: http://www.trade2win.com/boards/psy.../180300-risk-reward-question.html#post2208764
The reason I thought the 3 pip strat was relevant was that I thought it had the same characteristics as the trades in your video in that they got knocked out frequently.

Risking 3pips to make 3pips!!Hmmm :|.... Has given me an idea for an experiment though. 3pip hard stop vs 3pip signal and limit exit. Market entry with trend in x timeframe, 3pip target. Should be fun to compare.

Only one of the videos is for you. I had the impression you were looking for a strat, and there was a strat in the video.

The insiders vid was interesting, I especially like the 'spread button'! . Being able to change the speed of the price stream too! That should be interesting for anyone who believes in tick volume!

The second vid, the one you wanted me to see i skipped through. Having a major and minor trend makes sense, as does his dislike of stops, kinda. However, unless i missed it, his entry via renko was vague imo, i didnt like the trade management either. Using 1/5 size!? Then adding if it goes against you! Then if the major trend changes its all ok because of "natural $ cost averaging"!? Doesnt make much sense to me, then again, neither does Miley Cyrus so what do I know!

Im not looking for a strat mate, this thread shows how i like to trade. Just throwing it out there.

Cheers

 

[darktone]

Overall result.
The BE stop and tp were removed just before the close and put back on in the morning.

 

[BeginnerJoe]

Im not looking for a strat mate, this thread shows how i like to trade. Just throwing it out there.

Oh, OK. As you wanted me to link stuff, I assumed you were looking. But no harm done. Since you asked me about stops, so I gave you a video talking about stops more than any other videos I came across. As for the merit of the guy's strat, I considered it to be acceptable.

 

[darktone]

Ok, heres a screenie of yesterdays entry attempts, easier to visualize than just looking at orders. The same method is used for the entry tf as is used on the main trend id timeframe (in this case 4hr, signal is long), a close above the 5min MA means im trying to limit in.

As you can see that botched first attempt (just woke up and tried to enter using my phone!) gave me a lot of work to do, it also meant my final entry was 25 or so points higher than it should have. Obviously the lower the entry the better, more room for profit and if your target is a set number of points, the more likely your tp target will get hit.

I think in general, that pretty much covers the entry and loss management side of things. Hopefully the rest will be a bit less controversial.

Cheers
D

 

[darktone]

All imo, which may be different from yours.

I said in the first post that the words 'hope' and 'I dunno!' will come up, i know these are touchy areas for most of us. Ego is a demanding master! We all like to think we know a thing or two and what better place for us to prove how smart we are than in the market! I used to be all over predictive TA / PA / contrarian sentiment stuff etc, got pretty pleased with myself when things turned out right,they usually didnt pay very well though . As the years wore on I started to come to terms with the strong possibility that im all but clueless as to what the market will do next. These days i try and keep my ego at bay by following the market rather than trying to predict it. Things are far easier!

So whats the best way to id and follow a trend!? I dunno, but this is how i do it! .
Up trend = Close above MA
Down trend = Close below MA
Super simple and as free as poss of interpretation, imo. No 'Is that a trend line fibonacci double bottom 123 reversal'! Just green light or red light! Up or down! Sure theres gona be times when youre whipped, but this is where good trade management will help.

Below are a couple of screenies of how i see trend. Also the section of trend that im interested in terms of profit potential.

Is that the time!
Cheerrzzzzz

 

[darktone]

Todays efforts trying to get something off on the 4Hr trend. Thats enough for me today.

Ooooo! post 1000!:drunk:

 

[darktone]

No trading today as ive other stuff to do. This effectively brings the weeks efforts to a close.
A brief summary.

Losers (inc scratched/missed/BE trades. Interpret as you will):
BE = 8 (inc the mino on the 29th at 13.30, stop placement error! :whistling)
Limit exits = 11
Missed entries = 4

Total filled trades = 19
Total points lost = -21.5
--------------------------------------------------------------
Winning trades:
Total trades = 1
Total points won = 50

Id call that a busy flat week. Good job win/loss ratio (or should that be loss/win ratio) doesnt mean much in terms of profitability! lol

Cheers
D

 

[darktone]

Knowing that ive discussed the exit method outlined here before, I spent some time going over old posts. I wanted to see what was said by others (and me) on the subject. Found what i consider to real gems from stevespray.
The link for the thread is here: The Three Keys from post 88 on. Note the thread dates from early 2008.

The general gist of what i think is important follows. Get your reading goggles and grab a cuppa!

Hi LM, Great thread – I am very much enjoying watching the subject develop.

I hope that I might be able to add a few points to the many that have already been made.

Early in the thread several references are made to Jesse Livermore and his trading techniques. Several questions are then raised by his comments. I’m fascinated by Livermore and have been so for many years.
My feeling is that Livermore’s comments were perhaps cloaking a greater understanding of the markets than most of us perceive. Our ‘perception’ of what goes on is limited by our self imposed rule structures which we may consciously or sub consciously apply to ourselves. My feeling is that Livermore attached absolutely no value to index or stock values other than to acknowledge that each stock or index had to trade at a particular price. Naturally in a bull market prices tended to trend higher whilst a bear market would lead to an overall decline in prices.
Livermore’s techniques were not based around moving averages or any other indicator – this is important to understand since it is this understanding which paves the way for us to understand things beyond our current perception. The basis of this thread is an attempt to develop a largely mechanical trading system of sorts. The trigger to trade being a move away from a predetermined level. I would question everyone who feels the need to use a ‘rule based’ trading system. Most people choose a rule based system because they are looking to absolve themselves of trading responsibility – sub consciously life has taught them to do this – I guess you could call it ‘human nature’ of sorts. Most people will not make money from these systems for many reasons.

What I like about LM’s system are the comments regarding the trade going the right way from the start. This is the kind of ‘taking responsibility’ which makes a system potentially profitable. There is a massive reason for this which I will mention shortly.

Just getting back to Livermore and his techniques – These were, for the most part, based around what we would term as ‘tape reading’. As I said before, the level of an index or stock was not important, what Livermore saw as important was how the prices reacted to the activities of the larger market participants. He would examine how the market ‘absorbed’ buy and sell orders. His key tactic was to try and identify the key areas of what today we call ‘distribution’ and ‘accumulation’. Livermore would record findings in his various journals for later reference. The reason that Livermore was so successful was because he was able to uncover longer term trends right from their outset. The reason that most ‘mechanical’ trend following systems don’t make money is because they spot the trend late. Having ‘spotted’ a trend you join it and hope that the trend continues. Often this happens. The problem is however the exit from a trend. Again a mechanical system falls foul of apparent ‘lag’ – by the time the systems calls an end to the trend the price has retraced significantly and therefore a large percentage of the profit has been eroded. Likewise if we manually intervene, and close it ourselves, the trend will carry on much further and again the profit is missed out on!

Potentially profitable trading....

My own studies have uncovered what I feel are pretty important aspects of trading if one is to become and remain profitable. I feel that these ‘theories’ tie in very nicely with LM’s proposed trading system. This is because I feel that the sudden / rapid movements which LM is looking for are of a particular nature and caused by a particular set of events. People have questioned whether there will be too many false entries (“death by a thousand cuts”) – this is certainly going to be a problem and I would suggest that a volume study is going to be needed either as a set up or a conformation tool.

In my opinion it is important to understand that these types of breakaway techniques are only going to work when there is a significant level of ‘speculative money’ within a particular market. This is because speculative money tends to be ‘fast in – fast out’ in nature meaning that the speculative punter is easily persuaded to alter his market position and this is generally caused by the price movement itself. If the amount of speculative money in a market is low then the reactions to price movements will be very much more damped in nature – this leads to a marked increase in ‘false breakouts’ and the like and a more ‘random walk theory’ starts to prevail.
These theories are backed up by theories such as ‘reversion to the mean’. Someone mentioned earlier about the ‘true value’ of something – this is a very valid point since the true value of something can become vastly distorted by an increase in speculative money. Livermore talks in a number of his books about how certain commodity traders ‘cornered the market’ in certain things. In fact Livermore lost some large sums of money betting against these traders. Livermore commented that ‘no price is so high that it cannot double again in a month’ (or words to that effect). Likewise ‘no price is so low that it cannot half in a week’ (I hope no Northern Rock shareholders are reading this now!).
So, as speculative money enters the market the price can potentially move further and further away from its ‘true value’. In the markets price movements and bigger volumes in turn attract more speculative money which often creates small self perpetuation cycles. Mean reversion shows us that as volumes drop back off the market will return back towards its area of ‘true value’ – ie a fair value which is established by market participants who trade on much longer timeframes and are not persuaded to alter their positions by price movements in the shorter time frames.
As an example you can often spot this in the FTSE in the last 30 minutes of trading. Quite often the FTSE will move independently of its US counterparts (in that last 30 minutes) as the days speculative positions are unwound – this is a reversion towards true value.

So back to profitable trading....

In order to trade profitably on an intra-day basis one has to examine the habits of losing traders. This is, at times, much harder than it sounds. Most of my theories on this subject come about after studying my own unprofitable trading periods. In particular I had a period, about six years back, of intra-day trading on foreign exchange (USD/GBP to be exact) which was of particular annoyance to me since my trading was so consistently bad. By ‘consistently bad’ I mean that I was consistently able to ‘donate’ cash to the markets on a daily basis. As it was I was only trading with £1 per point whilst I ‘got the hang of it’ but it didn’t stop me losing, on average around £120 per week over the course of about 3 months. Statistically I was averaging just under two trades per day – say eight per week. This meant that with a spread of two pips my trading costs were only 16 pips per week which obviously meant that my net market losses were around 104 pips per week. This quite frankly amazed me and, once analysed, lead me to conclude that consistently profitable trading was very possible given that I could show (and indeed demonstrate live!!) that consistent losses could be achieved over and extended 3 month period. I continued studying my failings but to no avail. I could not place any logical reasoning behind this ‘consistency of losses’.
My ‘eureka moment’ came when I was relaxing whilst lying on a beach in Spain. My girlfriend at the time was most amused to see me scribbling away frantically with my demented ramblings. So what had I stumbled across??

What it all comes down to is ‘Stops’! Of course everyone will tell you that keeping good stops is the key to profitable trading but it simply isn’t as straight forward as that and I can now (attempt to) demonstrate why.

I would ask these following questions;

What is a stop and where is it generally placed?

What has happened once a stop has been tripped?

I will attempt to answer my own questions in an attempt to demonstrate my theory. Firstly, stops are generally placed at price extremes in terms of current market action. That is to say that when a stop gets activated the price will have moved to a point of local extremity (at the split second it is triggered) – if the price wasn’t at an extremity then the stop would not be triggered.
Secondly, once a stop has been triggered you are exchanging ‘piece of mind’ (that you loss cannot get any bigger) for a price which is very likely away from ‘true value’ (which is consistently to your detriment). I therefore consider that stops consistently triggered (due to price movements) will always represent bad value from a trading perspective because each and every time a stop is triggered you will be trading at a point in time where the price is least favourable to you in terms of deviation from true value.

Likewise when we think about wining trades – how often do we let winning trades reverse on us before closing? This is the second part of the theory. With stops we set ourselves up to trade at unfavourable price extremes and then compound the issue by only closing winning trades once the price has regressed a good way back towards true value. So, as you can see, we are trading in a manner which is a reverse of what is required.

In my opinion to trade successfully intra-day we must adopt a policy which takes advantage of the theory. This simply means closing bad trades on a regression whilst only ever taking profits on prices of local extremity. By trading this way we will only ever be exchanging ‘value’ at points which are beneficial to ourselves.


End of part one!


Steve.

An excellent post Steve that captures a number of key fundamentals to price action and speculative psychology very succinctly. Nice work.

Before anybody considers now placing their targets where their stops are and their stops where their targets are, they need to be able to have a reasonable shot at establishing the mean and extremity you refer to. The longer TFs which effectively drive this process have their own idea of future value as I’m sure you’re aware.

One of the most intelligent and informed posts for a while (apart from my own of course….)

Unfortunately it simply isn’t as simple as swapping your targets and stops around. It’s actually quite difficult to try and explain the point that I’m trying to get across. Can you see that with a stop the moment that it is triggered you are out of the market? Ask yourself what function a stop like that is actually performing? When we understand that a stop is performing a ‘service’ for us we can then move on to understand that this ‘service’ comes at a cost. It is this ‘cost’ that makes us consistently lose money. In simple terms, if we react to price is such a manner as to make us close our trade then we will more than likely be losing money.

Let me try the following as a semi practical demonstration....

Let us imagine we are trading GBP/USD. We will ignore trading costs to start with but will consider that a round trip cost is 2 pips.
Let us also assume that we are looking to scalp around 17 – 20 pips from a trade.
So, we see that GBP/USD has rallied to a round number at 1.9700. At this point we sell short at 1.9700. A trader prone to loss would now place a stop close by as he considers this ‘good practice’. Lets imagine that our generally losing trader places a 20 pip stop order to get him out of his short at 1.9720. At the same time he feels that his target for profit would be around 1.9680. He may or may not place a limit order to buy to close at this level. His feeling is that his ‘edge over the market’ is the fact that the market will normally reach points of resistance and support at round numbers and therefore by consistently making this kind of trade at these points in time he will, over the longer run, make money. At the moment this all sounds perfectly logical. (I will in due course try to prove otherwise.)
Imagine now that the market spikes higher still and reaches the stop at 1.9720. In an instant the trade is ‘stopped out’ and our friend is ‘flat’. Then what happens? Well obviously the market can still run higher or perhaps turn back lower. The chances are however that the market will run back lower and at some point will return to a level below the stop level set by our losing trader.
Try imagining now what would have happened if the trade would have gone into profit. Let’s suggest that over the course of 20 minutes the market fell those 20 pips. What would our trader do? The most likely thing is that he would have thought “Oh, this looks like it’s going lower” and held onto the position. Then, before you know it, the 20 point winner has diminished backwards into a 12 point winner... whoops... now it’s only an 8 point winner.... oh bugger lets close it for 8 while there’s still some profit left!

Do you see how both methods of ‘trade management’ are detrimental to profits? This is why our friend is a ‘generally losing trader’.

Psychologically our trader cannot win in the longer term because he is not capable of taking control of the trade management aspect of his trading. Instead he uses a ‘fixed stop loss’ because that ‘comforts’ him and causes him to believe that by doing this his potential losses from each trade are ‘under control’. Whilst this may be true to an extent our trader has failed to realise that, by allowing stops to get hit time and time again, he is consistently paying a premium to trade out of his positions at points of price extreme.

Of course the correct way to manage this type of trade is to use a mental stop which does not trigger an automatic exit from the market. Suppose in our example we set the following loose rules.

1 Mental stop of 20 pips.

2 Hard stop of 40 pips.

What we could do in terms of trade management is this. If our trade goes into loss then we will monitor it closely. If our mental stop is triggered we will move into ‘damage limitation mode’. This means that we have now accepted that our trade is a poor one and we are looking to get out. What we are waiting for is a better price than is currently available. It is possible that the market will move either way. If our mental stop of 20 pips gets hit and then the market retraces 12 pips then we can get out for a loss of 8 – see how remaining in the trade beyond our mental stop has saved us money? In most cases it will! Suppose, instead of retracing 12, the market moves on another 10 so our loss is now 30 – this can and does happen – it is still more than possible that the market will retrace 10 – 15 pips in the short term which still means a loss of less than 20 pips.
I hope that you can see that by taking responsibility for the trade management the losses can be far better controlled. This is because your exit from a trade is likely to be nearer to ‘true value’ than if you have a fixed stop set which is guaranteed to exit you from a trade at a price extreme.
Likewise by placing a limit close at a price extreme you are fair more likely to take advantage of poor losing traders when your trade closes at a point well away from ‘true value’


I hope this explains a bit more.

Steve.

To be honest, I think this encourages bad trading habits. If you have your mental stop at 20 pips and you don't take it out but wait for a retracement, when will you decide to stop yourself out? Suppose it is currently retracing 10 pips already. You are saying to yourself: "oh nice, maybe I can get out for breakeven". You hold on a little longer, price comes back to breakeven. Now you say to yourself: "I can't exit now, I'm just in touch of a profit". But two seconds later it plunges and you're down 30 pips, about the get taken out by your hard stop.

What I'm trying to say is, that if you have a hard stop at 40 pips and a mental stop at 20 pips, one of them has to be wrong on the account of a stop being the instrument to determine when the market proofs you wrong on your current position. If that 'trigger level' is at 20 pips you should get out at 20 and not wait to get taken out even further along the road. If that 'trigger level' is at 40 pips than you should not get out at 20 pips because it might just drop to 25 before reversing and finishing nicely in profit.

If you are going to determine in real-time when to stop yourself out instead of beforehand - that's basically what you're saying - then there's überhaupt no point in having predetermined stops. Except for those disaster events or should any external factor influence your ability to close out manually - e.g. power shortages etc. And that doesn't sound like taking much responsibility to me.

I can see your point and understand where you're going with this. But here I am, being a contrarian pain in the ass

Firewalker – Well made points.

My theories are based around the experiences which I set out in Post #88. In that post I mentioned how I lost, on average, about 104 pips per week on GBPUSD (Before trading costs were further deducted). This was based on an average of around 8 trades per week.

104 / 8 = 13 pips per trade average loss before spreads. That to me spells out the real cost of setting stops. This was amazingly consistent over a fairly long period and therefore I cannot determine that this is a coincidence.

I’m not sure whether you are wholly grasping the concept. I’m not trying to suggest a method where people should be ignorant of knowing when to get out of a bad trade. What I’m trying to point out is the relative costs of employing a system where a rigid stop loss is set on entry. I guess that what I am trying to get across is that a rigid stop loss is a form of panic. In the market panic costs you. You are in effect exchanging your position, at an inferior price, for peace of mind / relaxation.

Your questions are difficult to answer directly given that your overall trading style could be very different to mine.
In Q1 you ask about exiting a trade. If I was long then I would be looking to exit on sharp spike upwards. Sure the market might go on upwards after I exited but you cannot know that this is going to happen. What is important is that your exit is a reaction to a positive movement to price.
Q2 isn’t really a question. I agree with you. As humans we can always have an emotional involvement with a trade even after it is closed. I’m sure that we’ve all looked at prices of instruments after we have closed positions ‘just to see if we were right or wrong’ or to see if we can fathom a scheme which will allow us to trade slightly better next time out. I guess that this is part of trading. What we must understand is that we are never going to get ‘the perfect price’ every time we enter or exit a position so there is little point beating ourselves up over that.

In your Post #103 you say that you think this is promoting bad trading habits – I would have to disagree. What I would acknowledge is that a rigid stop loss system will stop bad trading habits occurring – all I would say however is that a) rigid stops cost you, and b) there are other ways of developing good trading habits. In my opinion rigid stops are not the only way to establish these ‘good habits’.
In your reply you actually disobey the loose rules I mentioned. Once the mental stop is triggered you are looking to exit the trade but slightly more cheaply than the current price. As a rule of thumb on GBP/USD you can normally manage around half the value of the maximum that the scalp has been against you. So if it went 20 against you, triggered the mental stop, then I’d be looking for around a 10 pip retrace. I would certainly not be looking to try and turn my losing trade into a winning one once the mental stop was triggered – if you did that you’d be running the risk of simply ‘running a loser’ which is what we don’t do.

I have to agree with firewalker. Neither your "poor trader" nor your "good trader" are exercising what I would call trade management, anymore than operating a vehicle while blindfolded and bound is "driving".

Clearly you have put a great deal of thought into this, but there is also a lot of "feeling". And, for both traders, a great deal of hope. Hope and feeling and could and might are not friends of responsible trade management. I understand the point you're trying to make about stops, but placing so much responsibility on stops when the entries and trade management are so poor (on both sides) is a bit like bailing out a sinking dighy.

Trading all in/all out creates all sorts of problems, particularly with regard to relying on hope. Focusing on true value can help, but since true value is in a continuous state of flux, this focus must be likewise flexible. One can also avoid the issue of stops by being in the market at all times, and if one is going to work with channels/envelopes/bands, this course may be just the thing, even though it carries its own set of challenges.

In any case, placing more than one level of stops and hoping that one's losing trade will eventually revert closer to an ever-changing mean is probably not the best choice for he who wants to improve his trading performance. When your poor trader does not exit at his target, his issue is not stops. When your good trader finds himself in a losing trade and hangs onto it in the hope that he will be able to exit at a better price, his issue is likewise not stops.

I propose that a simple test is conducted.

1) Spin a coin - Heads we go long, tails we go short.

2) We enter the GBPUSD market in accordance with our coin toss.

3) Our target will be 20 pips.

4) Our 'mental stop loss' will get triggered once the market moves 20 pips against us. Once the mental stop is triggered we will monitor how large the position is ever against us. We will close if the position goes 50 against us or upon the market retracing 50% of the maximum which it was against us.

5) We will enter the next trade at the start of the next 60 minute period after the close of the prior trade.

Any takers?

Steve.

So you're making a random entry at a random price rather than at any sort of price extreme or mean?

Correct - What I want to try and demonstrate is the 'cost of a fixed stop loss' vs 'a managed exit strategy' as I am convinced that it is a fixed stop loss that is of most 'expense' to an intra-day trader. In order to do this I want everything else to be totally random.

Steve.

Assuming no control of any other variables, how many trials are necessary in order to provide you with a statistically significant result? (I assume that anyone interested in a mechanical system would be interested in this.)

Not sure about number of results required. Any ideas on that one?
What I did think however was that 2 results can be recorded for each hour without the need for a coin toss. A result can be recorded for both outcomes. ie a long trade and a short trade.

Just had a quick check of 14:00 / 15:00 / 16:00 / 17:00 hours trades and the results are as follows....

WT = Winning Trade / LT = Losing Trade

14:00 WT +20 LT -12
15:00 WT +20 LT -14.5
16:00 WT +20 LT -12
17:00 WT +20 LT -11

Steve.

Originally Posted by stevespray View Post
My theories are based around the experiences which I set out in Post #88. In that post I mentioned how I lost, on average, about 104 pips per week on GBPUSD (Before trading costs were further deducted). This was based on an average of around 8 trades per week. 104 / 8 = 13 pips per trade average loss before spreads. That to me spells out the real cost of setting stops.
How you equate a losing trade with the cost of setting a stop is beyond me, but the logic behind it is flawed. For some a stop signal might be a reason to get out, for others it might be a reason to reverse one's position. I don't consider a stop to have an inherent cost, in fact I consider it to be the market's way of showing me I'm wrong.

Quote:
Originally Posted by stevespray View Post
This was amazingly consistent over a fairly long period and therefore I cannot determine that this is a coincidence.
Correlation does not mean causality.

Quote:
Originally Posted by stevespray View Post
I’m not sure whether you are wholly grasping the concept. I’m not trying to suggest a method where people should be ignorant of knowing when to get out of a bad trade. What I’m trying to point out is the relative costs of employing a system where a rigid stop loss is set on entry. I guess that what I am trying to get across is that a rigid stop loss is a form of panic. In the market panic costs you. You are in effect exchanging your position, at an inferior price, for peace of mind / relaxation.
Perhaps your view of a rigid stop loss as a form of panic might be because your stops are placed at price extremes, where they exactly should NOT be placed. Although I haven't seen your trades/charts to illustrate this, I suspect this is the case by what you are describing.

Firewalker....

Again I feel that the ‘concept’ is being missed by you. This is tricky as I don’t want to sound rude!

What you seem to be doing is rigidly connecting “that the market is showing me that I am wrong” (ie the price moving to your stop level) with the need to immediately exit your trade. Think about that for a moment? I would challenge whether those two ‘events’ need to be tied in such a manner? Can you see how your ‘reaction’ is 100% tied to price? If the price touches your stop you exit at that price – a 100% reaction to price. What is to stop you saying something along the lines of the following, “Ah, the market has shown that I am now wrong about this trade and I must now look for an opportunity to exit this trade”. You see how now your reaction, in terms of the status of your position, is not 100% fixed? Your reaction is not now rigidly tied directly to the price.

You also question my comments about stops being ‘panic’. Do not take this entirely literally. Again ‘panic’ is not an absolute; it is of course highly subjective. My concept is merely to suggest that a stop takes you out of the market with respect of only one thing – PRICE! This reaction is a form of ‘panic’ if you consider it very carefully.

The placement of the stop is irrelevant in the overall concept. If we start measuring the extremes of market movement from the moment that a trade is opened then the only place where a fixed stop can get triggered is at the local extreme of price movement with respect to the opening time of the trade. At the exact moment the stop gets triggered the price has never been further away by definition otherwise the stop would have been triggered previously. This means that you are always exiting trades at the worst possible price in terms of price expressed since the moment that your trade was opened.

I acknowledge that this needs a fair bit of chewing over but the substance of what I am trying to say is I feel very valid.

Wishes,
Steve.

Sorry, Steve, I must express my doubts, too.

BSD's post 125 explained the problem perfectly. When do you decide when enough is enough?

Your post 88 made me rub my hands in anticipation of reading a new idea but to me, a stop is to get me out of a losing trade.

I understand that your idea is to reduce the loss of a bad trade and get out but, if the trade reverses to something that looks like a pinbar, why should you close, then?

I, also, understand that some of my stops have been hit and then reversed. This is what your posts are about and that happens to most of us at some time or another. I think that the thread by TD is a good approach to that, i.e. trade on pins, although they go wrong, as well.

Your approach is not dissimilar to the "Writing Naked Option" approach. There is a swan around the corner.

Another idea is to try to get the stop right, in the first place, then extend it by another 10-15 points in anticipation of a bounce. However, the stop has to be there.

Split

Another idea is to try to get the stop right, in the first place, then extend it by another 10-15 points in anticipation of a bounce. However, the stop has to be there.
Split, Unless i got things wrong this what steve was saying in post 102.

Eg:
mental stop at -20
hard stop at -40

I think the reasoning is sound! If a little uncomfortable!

Hi Darktone

The method is sound, I have used method for over a year and have no problems with it. I do not no if it is or is not correct, it just works fine IMO.

What I will say is doing something is totally different to writing it, the old saying a good trade goes right from the off is or I have found it to be correct. I take a loss without thinking the moment I no I am wrong and it is always inside my money management plan.

Each to their own, if it works :?:

Not even a little uncomfortable once you get used to it.

I would say I expect a trade to go right from entry and once behind me is enough it never gets a second go, I am very used to 3 timeframes and there relative positions to each other.

I would also say I do not disagree with the other sides opinion at all = One fixed Hard Stop in fact I have decided to adopt one fixed Stop myself, maybe I am more confident in my inicial assesment for Stop location S&R levels etc I do not no, BSD/db posts are very good IMO and one fixed hard stop is certainly the best approach for anybody new to trading IMO.

Just wait for a test of your proposed stop area before considering an entry

ps dont forget the rep pts or I will sulk

Heya! Have to admit that it is something ive thought about before but for some reason never tried! Funny how when you see something written in black and white it can add weight to an existing notion! my head is hung in shame! lol.

I certainly dont knock a hard stop strat btw! I been using them tooo long !.. But! is there another way!? Perhaps! Im certainly gona dmor!.

 

[Splitlink]

Knowing that ive discussed the exit method outlined here before, I spent some time going over old posts. I wanted to see what was said by others (and me) on the subject. Found what i consider to real gems from stevespray.
The link for the thread is here: The Three Keys from post 88 on. Note the thread dates from early 2008.

The general gist of what i think is important follows. Get your reading goggles and grab a cuppa!

I'm flattered that you considered one of my posts worth repeating- I must say that I do not remember how old it is but my opìnion has not altered on that point, although, each week, I devise a new idea for entry! Maybe, the fact that I am still, financially, alive and kicking means that I must be doing something right.

 

[darktone]

I'm flattered that you considered one of my posts worth repeating- I must say that I do not remember how old it is but my opìnion has not altered on that point, although, each week, I devise a new idea for entry! Maybe, the fact that I am still, financially, alive and kicking means that I must be doing something right.

Youre most welcome mate! You made valid points, as did most of the guys who questioned the method. Im glad you can look back and still have the same views as before. I positively cringe when i look at some of the stuff posted in the early days!
When alls said and done, its the bottom line that counts! Regardless of what anyone says!
(That was all posted a little under 6years ago btw! Time flyes!)

Cheers
D