Stop Losses

[black bear]

db chart treated alone no other TF, ie: thats the high that I can see

I see no justification in not putting an hard stop over the High by a few ticks as per FW advice, it is the min charts so I might be giving it a little more room, but not much if it is an isolated high as it appears to be, but its not my TF so.......

 

[darktone]

I remember once - it was still early days then - when I was short and price started to move in my direction. I was about to move my stop to breakeven because there was some news figure coming out in about 30 minutes or so and price had already traveled a reasonable distance to substantiate that decision. Unfortunately, for some reason, the news came out at a different time, 30 minutes earlier. Price spiked way through my short position, and never came back there for the rest of the day. There I was, sitting like the proverbial deer in the headlights... To me, the opportunity cost of placing a stop warrants the protection I get from it.

Yes I agree, this is why I had have a "get me outa here" stop placed somwhere outside what id consider normal pa, for me 30 - 40 pips but as i said that is for ME! It suits MY style of entry. Last notible time i got stopped was a retail number and it was slipped. Somehow i managed to miss the fact there was news out,my general incompetence at that point in time . Glad i was out all the same as the next price was much further south.

However i dont believe tight hard stops are the best way for all the reasons made here!
http://www.trade2win.com/boards/mechanical-systems-trading/28101-three-keys-11.html
post 102.

I have thought about similar methods years ago but and it did kinda make sense but i couldnt apply it emotionally!. That to me is important bit! Realistically its obviously not for everyone!

Its simple to show, your scratch coloum can look like this.
-20, -20, -20, -20, -20, -20, -20, -20, -20, -20.

or it can look like this.
-10, be, +3, be, -20, -40, be, be, +3, -5.

 

[Splitlink]

Well I for one would like to thank db for making Pinkpig aware of that Live volume thing, its fell in very well with my usual method and up till reading his posted charts etc, it made no sense whats so ever


so.............

thanks db

Glenn
FW
VSA

Hi Andy,

Now I see why we are so different, apart from having wings, of course!

I didn't know that you were in to volume :smart:

Split

 

[firewalker99]

No. It's saying that I will act according to what the market's doing at the time rather than to what I thought the market might do or would do or could do or should do at the time I contemplated entering the trade.

As much as I appreciate your insights, it seems that either I have been interpreting things the wrong way, or you have changed your stand on the matter.

As most will remember the discussion in the three keys thread turned to stops at some point.

You then agreed with my POV when I posted:

"Trading without a predetermined stop level (be it mental or hard, but not both) is turning yourself over to the market without assuming responsibility for a trade. Relying on ad-hoc decisions is the exact opposite of trading with a carefully constructed plan."

Your above reply seems to contradict this however. Don't get me wrong, I'm not trying to turn this into a "you-said-I-said"-kind of argument; I'm merely trying to get grips on the motivations why traders would abandon the thought of using stops alltogether.

 

[tune]

They sort of go hand in hand, but think of stop as a safeguard. An analogy would be someone using a safety net when learning to walk a tightrope. The aim is to become skilled at walking the tightrope without ever falling off, the aim isn't to figure out how far from the rope you should place the safety net. The safety net doesn't improve or contribute to your ability to perfect balance and poise. It is there to protect you whilst you are learning these qualities. Imagine you start with the safety net 1 meter below the rope and you keep falling off. You wouldn't blame the safety net would you? An aspirant should always use a hard stop and keep it in place. As Oscar says,
STOPS ARE IN, EMOTIONS ARE OUT!:!:

Funambulists train using a low rope. Which, as an aside, sounds like a fun thing to have in the garden.

 

[dbphoenix]

Hi db,

Let me get this straight, because this thread is getting long and to go hunting can be a bind.....

Did you say, in so many words, that you put greater importance on the entry than the stop?

I ask this because I understand that you advocated very close stops when you debated with BSD , a few pages back. If that is the case, does that mean that you will not accept an entry unless the stop, mental or otherwise, is close.

Doesn't that mean that you will not enter a trade which has a possibility of getting stopped or, just as relevant, "hanging around" for an indeterminate number of bars.

What I'm getting at, when I say that I consider stops to be more important than entries, is that we are not very different from each other's points of view, surely? You reckon that your shares are going to move positively for you. I'm not so sure of mine, but get close to my stop out, just in case.

So, which is the more important? You've been around a long time but I am still here, too! I guess it's that volume thing that makes us different.

Regards Split

Regarding my "advocacy of very close stops", if you can provide the post numbers, I can begin to put together a response. Otherwise, this is much like a Have you stopped beating your wife? question.

 

[dbphoenix]

As much as I appreciate your insights, it seems that either I have been interpreting things the wrong way, or you have changed your stand on the matter.

As most will remember the discussion in the three keys thread turned to stops at some point.

You then agreed with my POV when I posted:

"Trading without a predetermined stop level (be it mental or hard, but not both) is turning yourself over to the market without assuming responsibility for a trade. Relying on ad-hoc decisions is the exact opposite of trading with a carefully constructed plan."

Your above reply seems to contradict this however. Don't get me wrong, I'm not trying to turn this into a "you-said-I-said"-kind of argument; I'm merely trying to get grips on the motivations why traders would abandon the thought of using stops alltogether.

I recommended the entire post, largely because of its stand on the "traffic lights" business. As for "abandoning the thought of using stops altogether", if one doesn't know how to read price action, he has no other choice. If he does know how to read price action, there's no reason for him to do nothing other than sit on his hands and hope that his stop isn't hit.

What I said about stops in that thread are as follows:

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.

and

As long as you have it all planned out ahead of time and stick to your plan, great, assuming that what you are doing generates profit.

Given the differences of opinion and in approach expressed here, and my comment above, I suppose I should point out -- and this is in reference to nobody in particular -- that whether or not one makes money doing whatever is not a sufficient test of whether or not he is "right" to be doing whatever it is he is doing. If, for example, one has a near target and a wide stop, he can make money if he is good at entry (assuming that he is also disciplined). But his reward:risk is never going to amount to much. But he is making money. Therefore, he is "right". Now someone else might look at this and think he's out of his mind to settle for what seems paltry. But they're hardly in a position to tell him that he's wasting his time and ought to try something else. It is not, after all, their money.

Some might think that I, for example, am fairly casual about stops. My targets are support and resistance, and I don't exit unless I am presented with a clear reversal signal. Absent that signal, I don't much care what price does on its way to the target as long as it gets there. On the other hand, if I get that signal, I'm out. Is that a stop? Some might say so. Some might not. One might just call it an exit strategy. In any case, I know exactly what I'm looking for, and when I see it, I'm done. I don't wait around to "see what happens". I don't hope for more.

 

[Splitlink]

Regarding my "advocacy of very close stops", if you can provide the post numbers, I can begin to put together a response. Otherwise, this is much like a Have you stopped beating your wife? question.

Sorry, I'm not inclined to scan 17 pages.

Nevertheless, if the market does not behave as you expect, you close out. That seems pretty close to being a decision on where your stop should be to me. I should imagine that it is fairly close, too.

Your skill in identifying correct entry points is what puts you ahead of the pack but I, still, believe that you know, exactly, where you are going to get out IF it is necessary.

Therefore, your stop must be as important as your entry.

What I'm on about is that this thread is all about stops. The best of traders must have a
point when they close a trade. It is the worst ones who don't have and I'm sure that you are one of the former.

 

[dbphoenix]

Sorry, I'm not inclined to scan 17 pqges.

Nevertheless, if the market does not behave as you expect, you close out. That seems pretty close to being a decision on where your stop should be to me. I should imagine that it is fairly close, too.

Your skill in identifying correct entry points is what puts you ahead of the pack but I, still, believe that you know, exactly, where you are going to get out IF it is necessary.

Therefore, your stop must be as important as your entry.

What I'm on about is that this thread is all about stops. The best of traders must have a
point when they close a trade. It is the worst ones who don't have and I'm sure that you are one of the former.

I'm not inclined to scan 17 pages either

But, yes, if the market does not do what's expected, I close out the trade. This is not a stop. This is an exit. A stop is determined ahead of time. I have no idea what the market is going to do after my entry ahead of time. Therefore, there is no therefore.

And, yes, the thread is all about stops. My point has been that beginning traders use stops and engage in the consequent dithering about stop placement because they have no idea how to read price action. Nor, apparently, do they care much about learning. So they apply byzantine schemes which they believe "protect" them, usually involving indicators or patterns, e.g., if the blue MA crosses the red MA, they're out, or if price violates the rhomboid. All of which is fine. But it does tend to encourage a "This is all now out of my hands" attitude toward the trade once it is initiated, and I suggest that this is not the best attitude to adopt and encourage.

 

[new_trader]

Sorry, I'm not inclined to scan 17 pages.

Nevertheless, if the market does not behave as you expect, you close out. That seems pretty close to being a decision on where your stop should be to me. I should imagine that it is fairly close, too.

Your skill in identifying correct entry points is what puts you ahead of the pack but I, still, believe that you know, exactly, where you are going to get out IF it is necessary.

Therefore, your stop must be as important as your entry.

What I'm on about is that this thread is all about stops. The best of traders must have a
point when they close a trade. It is the worst ones who don't have and I'm sure that you are one of the former.

I didn’t realise it was a debate about which is more important. A STOP is protection against misjudging the market. A newbie is going to misjudge the market much more often than someone with considerable experience and therefore should keep the ‘mistakes’ as cheap as possible. Why do people complicate matters?

 

[black bear]

Wings and volume a dangerous combination

Hi Andy,

Now I see why we are so different, apart from having wings, of course!

I didn't know that you were in to volume :smart:

Split

Hi Split

newboy at price and volume for sure, I re-read quite a lot of db"s work on it after he licked me in a debate about something, I was pretty sceptical myself and had read it before.

Always noted eod volume and the win/lose split for the day, never used it live and it looked very confusing so buried my head in the sand on this one :whistling

I use it at the moment with my usual method Split and :-0 its good stuff imho, will probably never go price volume alone, but then we all take what we learn and do something slightly different with it, don"t we Split :?:

I did take a week off trading to just watch price with volume at my usual entry locations and manual S&R points in the small timeframes and was very happy to incorperate it in my usual method.

So far I have found it a very worthwhile addition, no bother at all all ++++++++ so....

good posts db, thanks for taking time to post them, appreciated

Still look forward to licking you in a debate , might be a bit off yet

This Stop debate never ends, me I stick an HARD one 25 pts ftse for user error(news) or machine down etc, I am gone as soon as I do not see what I like, usually about 8-14 pts. BSD stays till his is stop is hit, thats because as grant pointed out he is a stubborn ............ both seem to be ok judging by how everyone defends their position so..................

debate over its a draw, you pays your money you takes your chance

Split you win because you just say you have to have one, which is good advice, I would add no larger than 2.5 % away from entry, less if possible but then it depends on your SR :cheesy:

Good trading all next week :clover:

Lad won his footy match 3-0 :clap: cup match - next round the semi

Wings and a rocket, just in case I get tired

 

[Splitlink]

I didn’t realise it was a debate about which is more important. A STOP is protection against misjudging the market. A newbie is going to misjudge the market much more often than someone with considerable experience and therefore should keep the ‘mistakes’ as cheap as possible. Why do people complicate matters?

It's not a matter of which is the more important. It's a matter of deciding if the Stop is less important than the entry. Do you think it is?

There are very few traders good enough to do without a stop. The IB platform has a facility for putting the stop on simultaneously with the entry. Of course, it isn't, really, simultaneous but it is so fast after the entry is triggered that it appears to be so. I wonder how many of the "professionals" do not use that facility?

So, my advice to newbies is, for what it is worth, to use it, even after they consider themselves not to be so.

 

[Splitlink]

Hi Split


you pays your money you takes your chance

Split you win because you just say you have to have one, which is good advice, I would add no larger than 2.5 % away from entry, less if possible but then it depends on your SR :cheesy:

Good trading all next week :clover:

Lad won his footy match 3-0 :clap: cup match - next round the semi

Wings and a rocket, just in case I get tired

Wow! What a score! A new pair of boots for him, for sure, Moneybags!

I agree with you about "You takes your choice".

Do you enter a trade 2.5% from fair value, or do you close it? If you enter, then keep your stop close and watch the trend line. Personally, I think that 2.5% is where a lot of the stops are.

Split

 

[dbphoenix]

Just for grins, let's look at the NQ chart I posted earlier, only this time with common indicators. Note that at the point at which I suggested entry, the MAs cross, the MACD fast line crosses the slow line, there is a MACD divergence, the RSI lines cross after having been >80, there's an RSI divergence -- all sorts of good things. Only problem is, all of these signals also occurred twelve to twenty minutes earlier. So, if one had entered earlier off these signals, where would he place his stop?

 

[dbphoenix]

Forgot the Bollies:

 

[darktone]

Just for grins, let's look at the NQ chart I posted earlier, only this time with common indicators. Note that at the point at which I suggested entry, the MAs cross, the MACD fast line crosses the slow line, there is a MACD divergence, the RSI lines cross after having been >80, there's an RSI divergence -- all sorts of good things. Only problem is, all of these signals also occurred twelve to twenty minutes earlier. So, if one had entered earlier off these signals, where would he place his stop?

Well first off all he should be taken outside and beaten with a large stick for having that nonsense on his chart!:whistling

Failing that he should have exited at best and observed, if hes still happy with pa then attempted to re-enter.

Or you could be patting yourself on the back for locking in a 2 point cost with a tight stop!

edit: Sorry, the one option i missed! get stopped after the failed double top! you slam your laptop closed in utter disgust and go for a walk! You arrive home to find your view played out the market had cruelly cheated of you payment for your effort. The cat hides! he knows what comes next... you been there?. snap!:cheesy:

 

[darktone]

Anyway. Forgeting entry and target. Just purely cost management.

Regarding: http://www.trade2win.com/boards/mechanical-systems-trading/28101-three-keys-11.html

post 107.

Can you explain how Steves thinking is different to your own other than he uses a safety net? You use words like hope and feeling as though they are something bad. We all have hope / feeling / fear / elation. etc etc. Its how manage them no!? Not executing due to any of the above emotions is where the failing lays.imo

 

[dbphoenix]

Anyway. Forgeting entry and target. Just purely cost management.

Regarding: http://www.trade2win.com/boards/mechanical-systems-trading/28101-three-keys-11.html
post 107.

Can you explain how Steves thinking is different to your own other than he uses a safety net? You use words like hope and feeling as though they are something bad. We all have hope / feeling / fear / elation. etc etc. Its how manage them no!? Not executing due to any of the above emotions is where the failing lays.imo

The objective is not to manage emotions but to let the emotions go so that there are no emotions to manage. If there is any sort of battle going on with regard to stops or triggers or any other aspect of the trading process, then the trader most likely has yet to come to terms with whatever issues he has regarding failure and loss. Either that or he has not gone through the steps I’ve provided elsewhere regarding preparation.

Emotions should not be an issue because there shouldn't be any to become an issue.

 

[darktone]

The objective is not to manage emotions but to let the emotions go so that there are no emotions to manage. If there is any sort of battle going on with regard to stops or triggers or any other aspect of the trading process, then the trader most likely has yet to come to terms with whatever issues he has regarding failure and loss. Either that or he has not gone through the steps I’ve provided elsewhere regarding preparation.

Emotions should not be an issue because there shouldn't be any to become an issue.

To me, that comes under manage, how an individual does is down to individual id say, acceptance/delusion/altered state!Personally, I think ive had mine beaten into me! lol .. I do agree that emotion should play no part in execution!.


When I enter a position and its goes ill, you better believe i hope it comes back to be for exit . if it doesnt then I look for the next exit rather like looking to take a profit at an extreme. I hope to minimise my cost.

When I enter a trade and it goes my. I hope it will reach my target. I also hope to get as many other like positions off with the same view.

I dont get unduly excited or upest from either outcome, for whatever reason.

Ive put a lot feeling into this post!:cheesy:

edit: opps, nearly forgot.. The difference between yours and steves cost managment? =)

 

[tune]

A newbie is going to misjudge the market much more often than someone with considerable experience and therefore should keep the ‘mistakes’ as cheap as possible.

Which kind of brings it back to the beginning. Why is it deemed so necessary for the aspirant to trade with cash in order to improve their understanding of price action? Especially given how blessed we are these days with equipment?

For very little outlay you can now have a fully functioning simulator, live charts and replay. For a little extra you can rig a PC up to TV/Monitor or projector and then sit back in an armchair and use a wireless keyboard or a remote control or allsorts. With speeded up replay it is perfectly feasible to watch a whole day or a year or whatever in a fraction of the time if you like. There are all sorts of non trading options that have the ability to enhance proficiency with reading price action. Trading with cash is only one of them.