Stop Losses

[firewalker99]

Just because it is not available does not mean it is not there. Add up all the forex deals from wherever they get made and you would have a number. Obviously a lot easier with something like the YM.

Perhaps, but if you trade FX you're going to do with what's available and adding up all the forex deals whilst trading in real time isn't going to be very productive...

Other elements missing? Like what? A chart is a record of deals made by people - take that out and what is it? That sort of thing?

Would you be able to distinguish the difference between two charts, one being random and the other being from say a stock or an index? And if so, what would you be looking for?

 

[tune]

Perhaps, but if you trade FX you're going to do with what's available and adding up all the forex deals whilst trading in real time isn't going to be very productive...

Would you be able to distinguish the difference between two charts, one being random and the other being from say a stock or an index? And if so, what would you be looking for?

Forex with correct volume? Might be worth the effort. Who knows unless it has been tried.

I have never seen a randomly generated price and volume chart. Is there such a thing? Be interesting to put them side by side if so.

 

[firewalker99]

I have never seen a randomly generated price and volume chart. Is there such a thing? Be interesting to put them side by side if so.

Well as you are asking... I'm trying to find a random chart generator, but seems I'll have to do with a random number generator instead. One could plot them out X versus Y and connect the dots to make up for a chart though.

There's some talk over at Tradingeducators.com about such a thing, but I'm not a registered member (and for the time being it seems they aren't taking new members) so I can't access the Excel file.

BSD, perhaps you have a random chart generator hidden somewhere in your arsenal?

Edit: I just noticed that this is being discussed here.

 

[temptrader]

http://www.trade2win.com/boards/247350-post33.html

Right Sir, on another thread on these boards I made two statements about what in essence are fundamental principles for any stock operator, futures trader or dealer in securities, commmodities or even currencies.

Anyone who is accomplished in the art of trading effectively in any market will recognise the validity of my statements, and I may add, that silence gives consent from the really expert few, but what happens is that when statements of quality are made on these boards they tend to stimulate the rabble to respond unfavourably when in fact they ought to be listening intently and not interrupting with rude and inept comments.

The two statements I made were "Survival of the Fittest" and "Merit, Ability and Conduct".

Let us take the first. The markets are not there for the benefit of individuals who have a gung ho attitude. They, as a by product of the way they are constructed, serve to punish, and I may add, punish severely those who adopt a cavalier attitude to trading, because, contraty to what is popularly disseminated here and elsewhere, it is not some silly little game that anyone can play, it is a profession. For this reason, the market sorts out the cavalier trader from the prudent and skilled. Luck, which may for a time be on the side of the unprepared, is not sustainable. so first of all there is a proper way of going about things and an improper way of going about things with ultimate inexhorable results.

This brings me to the second statement "Merit, Ability and Conduct"
We are going to concentrate for the purpose of this illustration to follow, on the question of Ability.

Because this is a profession and not a pastime, it requires the development of skill. This skill has to be underpinned by knowledge. And this knowledge has to be a vast pool from which to draw, because at any given moment any component of this pool has to be accessible in an instant, without hesitation of any sort, to be able to properly identify what is a real opportunit;y, against a very convinving mirage to be avoided by abstention, or by opposite response, as appropriate.

Now in simple terms, what happens is that none of us are born knowing. If we were, everyone could and would succeed immediately, which is not the case. In consequence of this obstacle, we have to undergo a process of learning to teach ourselves. This is a gradient which can take a very long time to climb, but I promise you, there is an ultimate end to it. It feels like climbing a mountain and finally getting to the summit, where there is no more mountain to climb but the reward is a sort of anticlimax, like the view the climber is entitled to enjoy.

Throughout this long climb, the act itself of climbing causes the climber to teach himself to climb more effectively. A seasoned climber who has climbed many mountains will climb more effectively than a new climber. Let us transpose this idea to trading. What I am imparting to you is that persistent attempts lead to improvement in ability.

Commensurate with the level of ability is the capacity to undertake what we shall call missions. Fortunately there are only three, Long, Short and Abstention. It could be worse, so we must be grateful there are only three possibilities, three options in this regard.

As the level of ability rises, together with the rising of this level and harmonious with it also three things develop. These are choices. Because they are choices they cannot be mechanised, they cannot be fudged, and they cannot be altered, because they are the expression of will. They constitute committment. As they constitute committment, once committed they cannot be undone, which is what makes this profession unique.

But what happens is that through the gaining of proficiency, these three choices do not exactly take on a life of their own, but evolve and become more and more accurate, and more and more refined.

I am specifically referring to Timing, the Point of Entry and the Point of Exit.

When the market begins to "talk to you" instead of just baffling you, the Point of Entry selects itself for you and the Timing is the right one. In consequence of this, you repeatedly and confidently experience the position going in your favour immediately. The stop, which is a crucial safeguard for everybody, is now quickly left behind. With progressive increases in proficiency leading to accurate entry and perfect or near perfect timing, the stop can now be narrowed and squeezed to the limit, taking into account the spread. The other thing that happens is that the exit point becomes clearer and clearer, as you begin to detect exhaustion or imminent reversal.

One percent of capital employed is a vast amount to risk. One fifth of this figure is what you should ultimately aim for or thereabouts.

But in the very early stages in your development as a trader you should begin to cultivate the use of tighter and tighter stops as you progress, because not to do so constitutes dereliction of control. Ultimately risk is about being able to control unforseen losses.

Nearly all of trading is about control. The most important aspect is the control the trader places upon himself to start with. With attainment of progressive proficiency over time, you will see and experience that everything else takes care of itself and falls into place neatly.

The price you have to pay is self governance of absolutely the highest order, and nothing else.

I therefore do not agree with theories involving wide stops or stops placed under the last reversal and such other tripe, I maintain that the trader has to assume complete and utter responsibility for his decision, all else is an excuse.

This attainment of self governance of the highest order is the single most difficult discipline most people have difficulty in mastering. You must take steps to master it, otherwise it will master you, with dire results.

I hope and expect that this comprehensive explanation serves to satisfy your query.

Unfortunately, Albert is absolutely right. I don't want to acknowledge that he's right, but what I've been through tells me that he is.

 

[firewalker99]

Forex with correct volume? Might be worth the effort. Who knows unless it has been tried.

I have never seen a randomly generated price and volume chart. Is there such a thing? Be interesting to put them side by side if so.

Might have what you're looking for here!

Have a look at the attached XLS file (you need to enable macro's for this to work). You can generate a chart based on flip coins.

I've attached an example chart.

 

[temptrader]

It is impossible for computers to generate random numbers, since they are totally deterministic. What they can generate are pseudo random numbers, and that's as far as it goes.

They can be "made" to generate random numbers in the sense of when they act as intermediatories in gathering data from a process that is random, but NOT of their doing. A bit like someone taking data as another rolls a die.

 

[BSD]

BSD, perhaps you have a random chart generator hidden somewhere in your arsenal?

Edit: I just noticed that this is being discussed here.

Fraid not, all I have is this video that someone else originally posted on the other thread:

Random Charts can be traded profitably Video

Btw, my original intention wasn't a discussion of whether markets are or are not random. Like the guy in the video I'm not really overly bothered either way.

My main point was that markets are not predictable.

The good thing though is that one doesn't need to know what happens next to make money.

Crikey, got some idiots climbing around on my roof repairing something at the moment yelling around, probably going to be there several days....

 

[new_trader]

If I understand correctly, you are advocating that a razor-sharp entry means you don't need stops anymore. But whether or not the entry is "perfect or near perfect timing" is something you only know in hindsight. Unless you stop yourself out if price does not immediately move in the favourable direction - which isn't necessarily a bad thing - I'm afraid this could lead to 10 stops and 10 re-entries in as many minutes. There's always the possibility that you've misread the market and as you're leaving stops behind, you're basically saying that there is zip chance that price will do something that you are not expecting.

Noooo! I think you have understood incorrectly.

"In consequence of this, you repeatedly and confidently experience the position going in your favour immediately. The stop, which is a crucial safeguard for everybody, is now quickly left behind."

When you become proficient with your entries you will experience the market moving (almost)immediately in your favour leaving your stop well behind and safe from being touched. If your stop is continually being hit you need more work on your entry. Never move your stop away from your entry or increase the size of your stops. This is a bitter and expensive lesson I have learned. I would also advise only 1 real trade per session. If you get it wrong, stop, look and learn why. Actually, don't just look, make an effort to SEE and understand, don't sit at your computer lamenting the loss. Study carefully what the market did/does at the time you entered. Re-enter a paper trade if you feel compelled to trade. Make 3 or 4 paper trades before you put your money at risk again. I will add just one caveat and that is to say that you must not try and force yourself to see and understand. You may inadvertantly force yourself to form erroneous conclusions which appear correct. Allow yourself as much time as you need, without any pressure. Keep a notebook by your computer and write down your observations and conclusions and test them. Test and refine, test and refine. Throughout this process you will have realisations which will turn on lightbulbs inside your head. This will lead to new realisations and more lightbulbs switching on.

 

[dbphoenix]

When you become proficient with your entries you will experience the market moving (almost)immediately in your favour leaving your stop well behind and safe from being touched. If your stop is continually being hit you need more work on your entry. Never move your stop away from your entry or increase the size of your stops. This is a bitter and expensive lesson I have learned. I would also advise only 1 real trade per session. If you get it wrong, stop, look and learn why. Actually, don't just look, make an effort to SEE and understand, don't sit at your computer lamenting the loss. Study carefully what the market did/does at the time you entered. Re-enter a paper trade if you feel compelled to trade. Make 3 or 4 paper trades before you put your money at risk again. I will add just one caveat and that is to say that you must not try and force yourself to see and understand. You may inadvertantly force yourself to form erroneous conclusions which appear correct. Allow yourself as much time as you need, without any pressure. Keep a notebook by your computer and write down your observations and conclusions and test them. Test and refine, test and refine. Throughout this process you will have realisations which will turn on lightbulbs inside your head. This will lead to new realisations and more lightbulbs switching on.

Much as I hate to say so, this is exactly correct.

 

[new_trader]

Much as I hate to say so, this is exactly correct.

Well this warms the cockles of my heart.

 

[0007]

When you become proficient with your entries you will experience the market moving (almost)immediately in your favour leaving your stop well behind and safe from being touched. If your stop is continually being hit you need more work on your entry. Never move your stop away from your entry or increase the size of your stops. This is a bitter and expensive lesson I have learned. I would also advise only 1 real trade per session. If you get it wrong, stop, look and learn why. Actually, don't just look, make an effort to SEE and understand, don't sit at your computer lamenting the loss. Study carefully what the market did/does at the time you entered. Re-enter a paper trade if you feel compelled to trade. Make 3 or 4 paper trades before you put your money at risk again. I will add just one caveat and that is to say that you must not try and force yourself to see and understand. You may inadvertantly force yourself to form erroneous conclusions which appear correct. Allow yourself as much time as you need, without any pressure. Keep a notebook by your computer and write down your observations and conclusions and test them. Test and refine, test and refine. Throughout this process you will have realisations which will turn on lightbulbs inside your head. This will lead to new realisations and more lightbulbs switching on.

So true. That advice is a golden nugget.

 

[firewalker99]

It is impossible for computers to generate random numbers, since they are totally deterministic. What they can generate are pseudo random numbers, and that's as far as it goes.

They can be "made" to generate random numbers in the sense of when they act as intermediatories in gathering data from a process that is random, but NOT of their doing. A bit like someone taking data as another rolls a die.

That's entirely correct, RANDOM.ORG uses such an "intermediatory". But as far as I know it's theoretically impossible to prove that a random number generator is really random...

 

[new_trader]

That's entirely correct, RANDOM.ORG uses such an "intermediatory". But as far as I know it's theoretically impossible to prove that a random number generator is really random...

On the subject of numbers, I think Pi is one of the most interesting of all irrational numbers. I didn't realise that there could be so many useless but interesting web pages dedicated to it.

This is a good one. Find your birthday in Pi.

The Pi-Search Page

The 1st time mine appears is well over 11,000 decimal places in :-0
Amazing how you can find something meaningful more than once in a decimal expansion that never ends and does not repeat

 

[temptrader]

On the subject of numbers, I think Pi is one of the most interesting of all irrational numbers. I didn't realise that there could be so many useless but interesting web pages dedicated to it.

This is a good one. Find your birthday in Pi.

The Pi-Search Page

The 1st time mine appears is well over 11,000 decimal places in :-0
Amazing how you can find something meaningful more than once in a decimal expansion that never ends and does not repeat

Actually there are loads more. Pi is probably the most researched and most well known to the public. There are a lot more mysterious numbers out there including:

1) odds values of the zeta function. They are extremely mysterious, only 3 decades ago we know that zeta(3) is irrational, the other values are conjectured to be so, but we still don't know. By contrast the even values of the zeta function are powers of pi times a rational number.:cheesy:
2) Euler's constant (not e, but the limiting one), this has resisted all attacks at trying to prove it to be irrational, let alone transcendental
3) all the transcendental numbers, and there are uncountably many of them . .
and so on . . . .

Forgot to add: you don't see these numbers around much because they appear in specialist situations, and also the functions that generate their digits are more computationally demanding/less efficient than Pi.

 

[temptrader]

That's entirely correct, RANDOM.ORG uses such an "intermediatory". But as far as I know it's theoretically impossible to prove that a random number generator is really random...

Of course it's theoretically impossible because we have practical considerations to take into account when dealing with the data. If we can get infinite experiments done then it would be a another matter. And that's where the damn concept of confidence intervals comes in, and unfortunately the statistical analysis follows.

 

[jonj]

If your reasons for entering the trade become null and void, exit and reassess what you see. If you see another opportunity, re-enter. If not, stand aside. To do otherwise is to hope that the market provides you with an unexpected gift.

exactly my point,then it makes more sence to have your exit automated rather than risk unesesary losses through slippages or not being in front off your screen or whatever??.mabye im just lazy though.
also if you dont have a predefined idea of when you would exit the position before you enter hoe can you include your money managment principles??

 

[moreliver]

Stops: horses for courses.

I do not day trade: I don't spend all day monitoring positions and therefore I need automation in my entries and exits. Stop and limit orders at the brokers and spreadbetters will do for me.

I do not have, nor do I want, all-singing, all-dancing trading software. I draw trendlines and such freehand on a printed chart or several available from a couple of financial sites to which I subscribe.

I never used to bother with anything more than mental stop losses until one year when a terrorist attack sent the markets plunging. I had coincidentally come home early to check up on an ailing stock long position and saw to my horror that my four long positions at that time were pointing vertically downward. I hurriedly closed out (flat overall, as it happened) and swore never to put myself in that position again. Did quite a lot of swearing, actually.

I've also had the experience of coming home to find that that nice little earner stock has plummeted 10% in the day. Because I had a stop loss fitted, I had exited the trade at a damn good profit before the price went tits-up. Yes, I trail my stop loss orders.

I find that working out where to put my initial stop orders can be difficult, especially in these volatile stock markets, but I generally put a stop loss at a technical point which answers the question "At what price will I know I was wrong about the trade?" Thereafter I trail it in the usual fashion.

I fine-tune a stop order to where I judge to be outside the 'noise' range of recent price fluctuation. That means wider stops in volatile environments than in nice tight trending markets. That also means hanging on to your trousers and coping manfully through drawdown periods in these volatile markets. I stick to rigid position sizing (oo-er!) of projected max 2% loss of total capital in a trade (if I was day trading it would be 1%), and if I can't afford the worst-case scenario loss then I refuse the trade.

I don't necessarily recommend my methods to anyone. After all, I do not make a living from trading and don't expect to any time soon. And I have a life. But on a forum dominated by day traders I thought you might find it interesting to read of a slightly different approach. By the way, my total congratulations to anyone who's been making money recently. It's been tough for many out there.

 

[doh]

What works for me

I've made all the usual mistakes - particularly stops too tight. Now I see my stop distance as an entry zone. Someone has already mentioned that there has to be some point at which you tell yourself the trade was wrong - that's where to put your stop - and for me it is usually at least 70 pips (trade 15 minute forex charts). I have an additional entry about half way between entry and the stop (at this point I consider the trade to still be valid - so why not get in at a better price). There is a psychological aspect to this too. If I always traded 10 or 20 pips in the opposite direction to my intended trade I'm sure I'd be quite wealthy by now - so when (not if) the trade starts to go against me it is important to me to see this as something positive (an opportunity to get in at a better price). My trading has moved from break even to quite profitable since I started using this approach - so I'm now looking at phased exits.
I know if you do the backtesting, optimization etc you will find that phased entry and exit is sub-optimal - but backtesting does not take into account how you feel. People like van Tharpe think we can be robots - but I can't, so I trade in a way that makes me feel comfortable.

 

[Splitlink]

I've made all the usual mistakes - particularly stops too tight. Now I see my stop distance as an entry zone. Someone has already mentioned that there has to be some point at which you tell yourself the trade was wrong - that's where to put your stop - and for me it is usually at least 70 pips (trade 15 minute forex charts). I have an additional entry about half way between entry and the stop (at this point I consider the trade to still be valid - so why not get in at a better price). There is a psychological aspect to this too. If I always traded 10 or 20 pips in the opposite direction to my intended trade I'm sure I'd be quite wealthy by now - so when (not if) the trade starts to go against me it is important to me to see this as something positive (an opportunity to get in at a better price). My trading has moved from break even to quite profitable since I started using this approach - so I'm now looking at phased exits.
I know if you do the backtesting, optimization etc you will find that phased entry and exit is sub-optimal - but backtesting does not take into account how you feel. People like van Tharpe think we can be robots - but I can't, so I trade in a way that makes me feel comfortable.

Do you come to a decision, before you trade, on what direction your instrument is going to go? (Of course you have, what a daft question). I meant, over your trading period-- it may all morning, or all day, or just an hour or so. I ask because I keep my stops fairly tight and if I close the trade, it is with the intention of opening again in the same direction later, hopefully at better price. Increasing stop distance takes away this advantage of the possibility getting your money back. I see my problem not as having close stops but, perhaps, having them too close. That is different to having them too far away. I don't trade Forex, but indices, therefore I concede that, in your case, 70 points may be acceptable. To me ? Brrrrrrrrrrr.



Split

 

[doh]

The problem I would have with tight stops and re-entry at a lower price is twofold - I would hate the psychological wear and tear of successive losses - albeit small. I would also have difficulty monitoring the trade with sufficient intensity that I didn't miss a big move (ie it could be a few minutes after exiting the previous trade).
As for direction I just use trend lines on different timescales - believe me I've tried everything else and the conclusion I've come to is that the smarter I think I am the dumber I am. I don't even use MAs - they are just a proxy for a longer term trend line.
I know the trade has gone against me when I significantly breach a longer term trend line.

Do you come to a decision, before you trade, on what direction your instrument is going to go? (Of course you have, what a daft question). I meant, over your trading period-- it may all morning, or all day, or just an hour or so. I ask because I keep my stops fairly tight and if I close the trade, it is with the intention of opening again in the same direction later, hopefully at better price. Increasing stop distance takes away this advantage of the possibility getting your money back. I see my problem not as having close stops but, perhaps, having them too close. That is different to having them too far away. I don't trade Forex, but indices, therefore I concede that, in your case, 70 points may be acceptable. To me ? Brrrrrrrrrrr.



Split