Stop Loss

[FutureMillionaire?]

I don't think I can truly experience the emotions of trading, unless I'm doing it for real.

... I'll just do it a small way, for the moment.

 

[anley]

I don't think I can truly experience the emotions of trading, unless I'm doing it for real.

... I'll just do it a small way, for the moment.

I agree, far better to trade with real cash rather than demo. This is why starting off with a small account is so important because if you lose it all or a large proportion of it, it doesn't matter. Also, you tend to learn so much more from your mistakes so in many ways you WANT to lose money when starting out. But of course you don;t try to lose money.

If I had £10,000 to open an account with, I'd put up a maximum £500 to start off, most probably for the first 3-6 months. If you get good at the game there's plenty of time to introduce your big guns :cheesy:

 

[crud-cutter]

Demo is not the same

I don't think I can truly experience the emotions of trading, unless I'm doing it for real.

... I'll just do it a small way, for the moment.

I agree - a demo account is not the same. Both from the emotional point of view and also (depending upon the platfor) a demo account often has delayed /slower prices which it will allow you to get in/out at wheras the live platform would not.
i wish this weas not the case, but unfortunately it is and we all have to accept it.

Ian

 

[Doctor Leo]

Most beginning traders fail with a real account after a success on a demo first and above all due to emotions, say, if you had a $100,000 demo and then you start to trade with $1000 you soon get disappointed with the sums you win and then there's temptation to put more and more on stake. The result is obvious.
Another side of the emotional component of trading demo is that you are tempted to wait in a losing position, and sometimes you can wait for it to turn profitable. But you cannot do it on regular basis on a real account which is, say, 10 to 100 times less than the demo one. So, if you trade a demo be sure to make the deposit similar to what you're going to trade with in real, or just enlarge your positions to preserve the amout of money at risk to the whole deposit sum ratio.
But all in all, emotions are what prevent a trader from becoming a success. If you have emotions it means that you do not have a profitable system, backtested and robust. So trading without a system with real money inevitably leads to the loss of the whole deposit. You should start off with money management, then system building, then demo trading and only after that begin to work with real money. Otherwise the whole thing is not trading, it's mere gambling.
I can name at least two brokers at once which offer a lifetime demo which is exactly the same if you trade small positions (say, up to 1 million) and they offer you any size of demo deposit you like, so you can check your robust and profitable system in conditions as close to real trading as my hands now to the keyboard. I mean Oanda (http://fxtrade.oanda.com) and Forexite (http://forexite.com).
As always, good luck.

 

[FutureMillionaire?]

As always, good luck.

Thanks, but I'm hoping it's more than luck. I'm studying the charts, and I believe I have a plan ... we'll see if it works. I'm mainly looking at support and resistance, breakouts and trends.... coupled, of course, with an eye on the financial calendar.

I'm not so sure about all the miriad of indicators ... unless there's one or two that shine out, that have a track record of giving reliable signals.

 

[Doctor Leo]

When I spoke about the system trading I didn't mean indicators. You can use trendlines, sup/res, economical news, astrology, roulette, anything, but you have to have strict entry and exit rules and test your system on historical data prior to commence trading. For example you look for breakouts, great, but do you know what exactly you will do when you see a breakout? Do you have a consistent citeria which allows for qualifying a breakout? Do you know before you enter the market when and how you will exit? This is what a system consists of. But if you believe you do have a system then of course it's OK.

 

[FutureMillionaire?]

When I spoke about the system trading I didn't mean indicators. You can use trendlines, sup/res, economical news, astrology, roulette, anything, but you have to have strict entry and exit rules and test your system on historical data prior to commence trading. For example you look for breakouts, great, but do you know what exactly you will do when you see a breakout? Do you have a consistent citeria which allows for qualifying a breakout? Do you know before you enter the market when and how you will exit? This is what a system consists of. But if you believe you do have a system then of course it's OK.

Well, yes and no. I have a system, but I'm still open minded, so I'm tweaking it a bit (like setting my stop a bit further away).

It's still early days.

 

[Doctor Leo]

Do you perform backtesting after each tweak or you try to apply it on-the-fly?

 

[FutureMillionaire?]

Do you perform backtesting after each tweak or you try to apply it on-the-fly?

I look to see what's actually happening. For example, I'm in a trade at this very moment .. and I set a stop loss ....Then I had another look at the chart and noticed that, whilst the general movement is in the direction I'm trading, it had touched my stop loss level earlier .... so I just moved it a little further.

 

[Doctor Leo]

...Then the price goes again closer to your stop-loss and you move it again just a bit further... and again... and then a "sudden" news comes and your stop is triggered. Most of time it happens this way. If you set a stop, it IS a stop, whatever happens to the price. It's a rule of thumb. If your stops are too tight then maybe it's wise to revise the rule you're using when placing stops, but then use the new rule all the time, without changing it.
BTW right now, 2 minutes before 2 PM GMT, I can see NO movement on majors, of course, maybe you trade any cross or scandinavians, or exotic.

 

[FutureMillionaire?]

.... It got me ! Made a big loss that time. Maybe, as you said, I should have left it where it was.

 

[Doctor Leo]

You stood long euro? Pity you are, sorry for that.

From what you say "I see the price going my way" I can assume that there's whole mess of timeframes in your head. And you don't know still what is your price movement. Say, for someone the current fall in euro for 40 pips today is his movement, for me, for example, it's nothing. That's why I advised to build up a system first and the strictly obey its laws. By system building I understand not necessarily indicators crossovers and similar stuff, but a set or rules of when, where and how to enter and to exit. And of course before building a system you should assume which price movements you're gonna trade, how large should be the piece of cake you're gonna steal from the market.

 

[FutureMillionaire?]

I've clearly got a lot to learn.

It's Soooooo easy to get cocky. I started the day with 4 winners on the trot (small winners). Thought "this is easy money", then had 3 BIG losers!!!! Unfortunately, the losers cancelled out all my gains, so I'm back to square one!

The problem I seem to be having is... When the trade is going with me, I think "I won't be too greedy" and accept a modest gain. But, when it's going the other way, I have to give it room to turn (I've already found that if I set my stop loss too close, I get stopped out, even if it then carried on to where I was expecting it to go in the first place.). By giving it room, by definition, if it doesn't turn, the loss is greater.

 

[damianoakley]

Hi Future,

In my view, it would be a good idea to make all your losses equal, rather than have some small losses and some massive losses.

Do you know how to do this? Do you know how to make every loss an equal part of your capital?

If not, let me know, and i'll explain it for you here, so that everyone can benefit.


Thanks

Damian

 

[Doctor Leo]

Future,
your problem is the absence of a trading system, that's why you think while you're in the market to be or not to be greedy, to surrender your fears or to be bold, in other words, you speculate with your emotions which of course have nothing in common with system trading. If you had a backtested set or rules there will be no room for emotions, for example if you know that each trade will cost you 50 pips in case it would be stopped and will bring you 150 pips in case it's a winner and the probability of a winner is about just 50 per cent (I'm now describing my own system), then you just place right orders and switch off the computer and go to a pub, or to the cinema with your girfriend, or anything you like which is far more pleasant that stupidly sitting in front of a monitor peering at the charts and preaching "oh, just a pip more, just a pip back!"
So, if I were you, I would stop trading and tried to find just one setup, one repeating situation which leads to substantial profit in at least 40% of cases. Then I would write down the set of rules I've found out, and started to trade strictly obeying them and recording all my entries and exits with comments. And if I can trade with this set of rules at least for one or two months on demo I would go to a real trading. And only when trading with this set of rules is as convenient to me as drinking my morning coffee, I would go for some other setups and other rules.
Good luck as always.

 

[FutureMillionaire?]

Hi Future,

In my view, it would be a good idea to make all your losses equal, rather than have some small losses and some massive losses.

Do you know how to do this? Do you know how to make every loss an equal part of your capital?

If not, let me know, and i'll explain it for you here, so that everyone can benefit.


Thanks

Damian

Please do. I'm trying to learn as much as I can.

 

[FutureMillionaire?]

for example if you know that each trade will cost you 50 pips in case it would be stopped and will bring you 150 pips in case it's a winner and the probability of a winner is about just 50 per cent .

They seem like big numbers. I wouldn't have thought 150 pip winners come around too often. I've been looking at 10-20, and occasionally more if I ride a break. The problem is, I've been setting the stop at around 30 so, as you can see one loss cancels out 2-3 winners. (I've actually got quite a good success rate - but the losses wipe them out)

 

[damianoakley]

Please do. I'm trying to learn as much as I can.

OK - here goes. How to equalise your risk on every trade in forex trading. This will be well-known for some, and some free coaching for others!

Let's say you have £10,000 in your account and for each trade that you lose on, you want to lose no more than 1% of your total trading capital - ie - £100.

You are looking at the EUR/USD and decide you want to enter the market long at 1.2830 with a 30 pip stop at 1.2800. Your risk will be 30 pips, but how many 10k mini-lots do you buy so that if your stop is hit you only lose 1% of your account (£100) ?

Firstly, divide what you want to risk (the £100) by the number of pips you are risking (30 pips) = 3.3333333. Then divide that by the $/£ exchange rate, which is currently 0.53 = 6.2893081. Then times that figure by 10,000 to get the size of your position = 62,893, which is rounded down to 6 mini-lots.

If you now buy 6 mini-lots at 1.2830, you will lose just under £100 if your stop is hit.

Using the above method of position-sizing, your loss can be 1% of your capital whether your stop is 30 pips, 50 pips, or 16 pips.

Hope this helps and was useful.


Thanks

Damian

 

[Doctor Leo]

They seem like big numbers. I wouldn't have thought 150 pip winners come around too often. I've been looking at 10-20, and occasionally more if I ride a break. The problem is, I've been setting the stop at around 30 so, as you can see one loss cancels out 2-3 winners. (I've actually got quite a good success rate - but the losses wipe them out)

There's one golden rule: set your targets at least two times bigger than stops. Then even if you have only 30% profitable trades, you will break even. If you have more, you're profitable.

Look at an hourly chart of cable for last three months and you'll see several nice opportunities to buy and sell with targets much more than 150 pips. In general, 100 pips on cable nowadays is quite a modest profit.

What you're trying to do sounds close to scalping, but this technique although very effective is extremely difficult and has nothing in common with sup/res, trends and all that stuff.

You've already been advised how to calculate your risk, a very wise advice. And then, I can advise you how to calculate your stops. First look at the daily volatility of the instrument you're trading. For euro, for instance, it's currently between 50 pips. So, if you have a stop less than this figure chances are that you'll be wiped out on occasional spike for example. It's just a rouch estimation, but personally I use stops not less than 40 pips for euro. And if you trade cable just look at hourly chart - even hourly volatility of this instrument is about 60 pips, so if you're using a stop of 16 pips on cable it's Russian roulette, not trading. Try to find a good peak or bottom on the houlry chart at least, better on daily, and consider it as a stop. Just a hint on where to start digging.

 

[FutureMillionaire?]

Look at an hourly chart of cable for last three months and you'll see several nice opportunities to buy and sell with targets much more than 150 pips. In general, 100 pips on cable nowadays is quite a modest profit.

What timescale are we talking about? How long do you typically stay in a trade?