RB,
No, I was quoting myself. The point being, daytraders for a variety of reasons feel that the short timeframes are profitable and safe.
My retort must be if it's so profitable and safe, why have a stoploss?
Because, of course if they didn't, inside a month they would only be paper trading.
So, the stoploss' history, that being taken from professional gambling, and applied to trading, is seemingly a good fit.
However a moments thought would highlight some rather serious discrepencies. The most serious being, that in most forms of gambling the universe of your risk is fixed, ie. there are 52cards in the pack, 34 ( or 36 ) numbers on the roulette wheel etc.
In a trade, the variables are not quantitatively known to the same exactitude.
Therefore the stoploss is a poor choice of tool to transpose onto the financial markets.
As "risk" management, it is a resounding failure, and DIRECTLY contributes to the high blowout of traders...................the irony being, they view it as risk management.
How perverse is that?
cheers d998
No, I was quoting myself. The point being, daytraders for a variety of reasons feel that the short timeframes are profitable and safe.
My retort must be if it's so profitable and safe, why have a stoploss?
Because, of course if they didn't, inside a month they would only be paper trading.
So, the stoploss' history, that being taken from professional gambling, and applied to trading, is seemingly a good fit.
However a moments thought would highlight some rather serious discrepencies. The most serious being, that in most forms of gambling the universe of your risk is fixed, ie. there are 52cards in the pack, 34 ( or 36 ) numbers on the roulette wheel etc.
In a trade, the variables are not quantitatively known to the same exactitude.
Therefore the stoploss is a poor choice of tool to transpose onto the financial markets.
As "risk" management, it is a resounding failure, and DIRECTLY contributes to the high blowout of traders...................the irony being, they view it as risk management.
How perverse is that?
cheers d998
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Phew! It's all there, that's for sure! And we all have our different opinions. Stop losses? Are you really bothered about anybody else on the market? Market wise, i would take the last breath of my mother, if it gave me a few points! And thats reallity! CRUDESCHMOY!
Get with the programme, folks!
If you have not got your money, i will have it! Get the drift, idiots!
Keep your money safe. You earn it, you keep it safe! Or else i will have it! Know what i mean?
Get with the programme, folks!
If you have not got your money, i will have it! Get the drift, idiots!
Keep your money safe. You earn it, you keep it safe! Or else i will have it! Know what i mean?
Last edited by a moderator:
Grant ,
are you making 'poor' analogies re business costs and gambling to support the approach you have found with FA which it looks as though you are becoming increasingly comfortable with...don't fall into that trap..Mr Buffet I think would tell you it does not go according to plan all the time and when it does not, then you need to know where you will not pay anymore money simply to try to prove to yourself that you were right...in other words whatever your basis FA or TA , the rationale for entering a trade has a reason...when that reason is shown to be incorrect then it's time to 'stop' and the loss that accompanies that decision is a business expense , a maket research expense , a seeding expense ..call it what you will it really does not matter..the issue is you need to know when your analysis is not going to work for you.... your comment re poor selection of trade is as very close as I have come to looking at the problem with Stops...it isn't the stop that is the problem most of the time..it's the trade selection
..people are either just so hungry to get the money in the bank they can't discipline themselves to do nothing and wait for the best opportunities , or perhaps they just don't understand that all opportunites are not created equal...but, if you can discipline yourself to recognise when a trade is high probability and based upon profitable experiential observation then I don't think it matters whether you are using FA , Ta or any type of A you wish to create.
are you making 'poor' analogies re business costs and gambling to support the approach you have found with FA which it looks as though you are becoming increasingly comfortable with...don't fall into that trap..Mr Buffet I think would tell you it does not go according to plan all the time and when it does not, then you need to know where you will not pay anymore money simply to try to prove to yourself that you were right...in other words whatever your basis FA or TA , the rationale for entering a trade has a reason...when that reason is shown to be incorrect then it's time to 'stop' and the loss that accompanies that decision is a business expense , a maket research expense , a seeding expense ..call it what you will it really does not matter..the issue is you need to know when your analysis is not going to work for you.... your comment re poor selection of trade is as very close as I have come to looking at the problem with Stops...it isn't the stop that is the problem most of the time..it's the trade selection
..people are either just so hungry to get the money in the bank they can't discipline themselves to do nothing and wait for the best opportunities , or perhaps they just don't understand that all opportunites are not created equal...but, if you can discipline yourself to recognise when a trade is high probability and based upon profitable experiential observation then I don't think it matters whether you are using FA , Ta or any type of A you wish to create.
Glenn
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DC
"Quote:
Once you have placed your trade, you are entirely at the mercy of all the other traders of that instrument as to its direction thereafter.
Absolutely not. Hence your incomplete understanding of risk, and risk management. "
You accept that 'anything can happen' and deny that the direction of the price is caused by others. This does not make sense. Perhaps you misunderstood my point.
Feel free to criticise my understanding of risk and risk management if it pleases you, but that has nothing to do with the facts in question.
As regards your claim of no losses over 18 months, you have not qualified this fully.
Could it be for instance that you have not exited any positions which are still running at a paper loss ?
That would fit in with your claim, but it is rather different to the impression you may be trying to give as regards your success in making profits when compared to using TA.
But as you have not claimed to have made any profits, it is not clear what you are trying to say.
Perhaps you should be more specific, otherwise your point is lost.
And to add to this, the past 18 months have been a bull run in many markets, and the phrase that springs to mind is "Never mistake a bull market for skill".
As regards your view of 'the inherent worthlessness of TA', you have to accept the possibility that it not something which you are good at rather than it being at fault. I recall some of your earlier posts which mentioned some rather rudimentary TA approaches. If that was your understanding of TA then it is no surprise that you could not make it work.
"In a trade, the variables are not quantitatively known to the same exactitude" (...as in gambling)
Quite so. Nonetheless if you have an edge then you have an edge and you can use stops for the times when the edge does not work in your favour.
But do/did you have an edge ?
I notice that you often speak in terms as if you have possession of considerable factual statistics or direct knowledge about what large numbers of people think and how they behave. You must be in a unique position to have such knowledge, especially as your profile suggests that you are fully occupied with your day job. Pray elucidate.
e.g.
"daytraders for a variety of reasons feel that the short timeframes are profitable and safe."
"As "risk" management, it is a resounding failure, and DIRECTLY contributes to the high blowout of traders...................the irony being, they view it as risk management."
Glenn
"Quote:
Once you have placed your trade, you are entirely at the mercy of all the other traders of that instrument as to its direction thereafter.
Absolutely not. Hence your incomplete understanding of risk, and risk management. "
You accept that 'anything can happen' and deny that the direction of the price is caused by others. This does not make sense. Perhaps you misunderstood my point.
Feel free to criticise my understanding of risk and risk management if it pleases you, but that has nothing to do with the facts in question.
As regards your claim of no losses over 18 months, you have not qualified this fully.
Could it be for instance that you have not exited any positions which are still running at a paper loss ?
That would fit in with your claim, but it is rather different to the impression you may be trying to give as regards your success in making profits when compared to using TA.
But as you have not claimed to have made any profits, it is not clear what you are trying to say.
Perhaps you should be more specific, otherwise your point is lost.
And to add to this, the past 18 months have been a bull run in many markets, and the phrase that springs to mind is "Never mistake a bull market for skill".
As regards your view of 'the inherent worthlessness of TA', you have to accept the possibility that it not something which you are good at rather than it being at fault. I recall some of your earlier posts which mentioned some rather rudimentary TA approaches. If that was your understanding of TA then it is no surprise that you could not make it work.
"In a trade, the variables are not quantitatively known to the same exactitude" (...as in gambling)
Quite so. Nonetheless if you have an edge then you have an edge and you can use stops for the times when the edge does not work in your favour.
But do/did you have an edge ?
I notice that you often speak in terms as if you have possession of considerable factual statistics or direct knowledge about what large numbers of people think and how they behave. You must be in a unique position to have such knowledge, especially as your profile suggests that you are fully occupied with your day job. Pray elucidate.
e.g.
"daytraders for a variety of reasons feel that the short timeframes are profitable and safe."
"As "risk" management, it is a resounding failure, and DIRECTLY contributes to the high blowout of traders...................the irony being, they view it as risk management."
Glenn
SOCRATES
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Let us take this topic of stoploss one notch higher shall we ?
When you become very familiar with an instrument, it talks to you.
It indicates to you its propensity to go higher or not, to fall further or not, and how far.
It also tells you that it is zig zagging and going nowhere.
All these inferences are there for everybody to observe, but you need a lot of screen time to be able to tune in and pick them up.
When you first start with all this, you have to use a stoploss every time you take a postition because your judement is not so accurate and your timing is not so good.
With the passing of time and the clocking of screen hours, if you are able to recognise mistakes and not repeat them, your accuracy improves. If you do it for very long, and you are very strict with yourself and you proceed to benefit from your errors by cataloguing them, you will get to a point of development in which you are right most of the time.
When you start, the stops you are likely to use are a bit wider than those you will eventually end up with at the end of your road, but the idea of using stops must never be derelicted or abandonded.
The reason for this is that you may be perfectly right to enter a trade by taking a position. However, it may be that at the very moment you have done this, unbeknown to you conditions may have suddenly changed.
When you decided and entered you were right, now suddenly you are wrong.
At a mechanical level a stoploss mechanically curtails unnecessary losses.
At a higher level of proficiency, even when the stop is a very tight one, in the same way that the instrument you have specialised in will talk to you, the stop will do the same, it will tell you that the posture you are currently adopting is the wrong one, and that you must not persist.
This means that if the ensuing move developing is particularly strong and steady, you ought to consider taking the opposite view, or, if the move developing is unclear, you ought to abstain.
Using stops is part of trading, it is very foolish not to use them at whatever level of proficiency you are at.
When you become very familiar with an instrument, it talks to you.
It indicates to you its propensity to go higher or not, to fall further or not, and how far.
It also tells you that it is zig zagging and going nowhere.
All these inferences are there for everybody to observe, but you need a lot of screen time to be able to tune in and pick them up.
When you first start with all this, you have to use a stoploss every time you take a postition because your judement is not so accurate and your timing is not so good.
With the passing of time and the clocking of screen hours, if you are able to recognise mistakes and not repeat them, your accuracy improves. If you do it for very long, and you are very strict with yourself and you proceed to benefit from your errors by cataloguing them, you will get to a point of development in which you are right most of the time.
When you start, the stops you are likely to use are a bit wider than those you will eventually end up with at the end of your road, but the idea of using stops must never be derelicted or abandonded.
The reason for this is that you may be perfectly right to enter a trade by taking a position. However, it may be that at the very moment you have done this, unbeknown to you conditions may have suddenly changed.
When you decided and entered you were right, now suddenly you are wrong.
At a mechanical level a stoploss mechanically curtails unnecessary losses.
At a higher level of proficiency, even when the stop is a very tight one, in the same way that the instrument you have specialised in will talk to you, the stop will do the same, it will tell you that the posture you are currently adopting is the wrong one, and that you must not persist.
This means that if the ensuing move developing is particularly strong and steady, you ought to consider taking the opposite view, or, if the move developing is unclear, you ought to abstain.
Using stops is part of trading, it is very foolish not to use them at whatever level of proficiency you are at.
nine
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Thanks for your long reply (previous to this post). I now feel that I understand where you are coming from; I also feel that you might have a misunderstanding --- or just be representing one point of view for the sake of the debate. The quote above illustrates the issue.ducati998 said:
My personal view is that there are lots of ways to "trade" profitably:
- soccy's somewhat mystical perfect alignment approach which I am unable to achieve yet
- fundamental with risk limit by position size
- your (I dont really understand it) trade selection (and maybe position size) approach
- probability edge and stop loss trading
- other approaches
I don't wish to attack other approaches. I would like to make a few points for probability trading which is what I am choosing to call the "gambling" model.
In this model you find an edge which is a combination of entry, worst case exit and exit rules. This edge (say buying when price close exceeds the 80 day 2stddev bollinger bands and exiting at the mid line or some more complex rules) seems likely to have a statistical payoff. You test it. You improve it. You test it some more and then try trading it (walk forward and paper trading may be involved). At the end of this you have a set of rules that historically has made money and you trade them, watching carefully for system breakdown (at which point you improve, abandon or shelve the system for better conditions).
This is the model I follow for day trading and it gives me 5-10 trades a day with a 70% win rate and an average win thats 1.5x the loss. I happily accept that this is a professional gamblers model. It is also very hard for many people to implement because our brains are not wired for good probabilistic trading.
The great thing about this model is that it can provide a stunningly high return on capital invested. For a risk of $100 per trade on a contract with $3000 margin it returns $500 per day. Two contracts = $1000 per day. So with an account of $10,000 and 200 trading days per year you could earn $200,000 or an annual 2000% return with no compounding.
So I don't daytrade because its "safer." I daytrade simply because of the additional leverage thats possible. But this model does require stops :cheesy:
Stops....Mmmm.....? Lets not call them stops, it all sounds a bit too rigid, a bit too negative and a bit too absolute? Lets call them 'the point i will not go beyond, because this trade i have made has turned pear-shape and i'm getting out of it!' Or words/thoughts to that effect. Now, let's look at the words/phrases such as time-scale, experience, personal reference and so on. Our win/loss ratio in respect of number of trades we make should get better as we become more experienced, should it not? The more experienced traders on here will go on about not using stops, but don't take this the wrong way, even they know when and where to 'draw the line'. The point i am trying to make is that stops probably become less frequently thought about and used or even hit with experience?
GLENN,
Any thing can happen in the future, agreed. In reference to the business, or industry.
Market Price direction however is completely different, and in many instances irrelevant, hence "riskless"
That is entirely possible, and on occasion perfectly accurate. Currently this is not the case.
My point is, in 18mths I have not lost any money. That should interest you, that it doesn't gives me pause for thought. You can see posted trades, ( GM, TELOZ, CTEL, DIA, ) and calculate the type of profit I make, circa 30% on directional equity trades.
Absolutely true, and I would concur, it is easier for me in a neutral or bear market however.
You are referring I believe to the CPE ( Intuition thread )
1 method, was a purely "mechanical method" that was developed in Australia, and was extensively tested, and traded "live" for the last 3yrs, returning a large profit, and still currently trading at a profit.
Method 2 was simply a Support / Resistance analysis, simple basic, no good? Maybe.
Method 3 was an "oscillator", again basic stuff agreed, but utilised by many.
Method 4 was a "EMA" as a trendline support, again used successfully by many.
One P&V analyst joined the fray, and struggled also.
5 methods, all TA, all failed miserably. All ran a stoploss, all caused losses, currently price ticking up slowly $14.50 odd.
You yourself declined to participate, citing secret methodology, or some such. Therefore we shall never see a true expert at work, utilising the cutting edge of TA.
However, as you are insinuating that a "competent" Technical Analyst would have surpassed my ineffectual blunderings, tell me;
Would he have had a stoploss?
If yes, ........Why?
If so competent why the requirement for a stoploss?
On my 4 live trades posted on this site.................none run a stoploss.
Why?
Because risk management does not = STOPLOSS
TA has no edge.
It is chasing momentum plain and simple, that momentum can change in a heartbeat, that is why you require a stoploss.
If there was a true quantifiable, statistical edge, stoplosses would probably be redundant.
I do the work that is necessary to succeed.
Others could emulate if they chose to, data is freely available.
I do have a profession, in addition to the running of my ( smallish fund ) ever heard of TIME MANAGEMENT.
SOCCY BABY.
Your considerable experience...................
But in essence I accept that with time and practice, a certain "feel" for the market will develop.
But, as "feel" is prone to being tempermental, stops are still required, as you are trading momentum, and for you "THE MARKET IS ALWAYS RIGHT".
For me, the market while not irrelevant, is not the final arbiter of my decisions.
No just you technical boys.
cheers d998
Any thing can happen in the future, agreed. In reference to the business, or industry.
Market Price direction however is completely different, and in many instances irrelevant, hence "riskless"
That is entirely possible, and on occasion perfectly accurate. Currently this is not the case.
My point is, in 18mths I have not lost any money. That should interest you, that it doesn't gives me pause for thought. You can see posted trades, ( GM, TELOZ, CTEL, DIA, ) and calculate the type of profit I make, circa 30% on directional equity trades.
Absolutely true, and I would concur, it is easier for me in a neutral or bear market however.
You are referring I believe to the CPE ( Intuition thread )
1 method, was a purely "mechanical method" that was developed in Australia, and was extensively tested, and traded "live" for the last 3yrs, returning a large profit, and still currently trading at a profit.
Method 2 was simply a Support / Resistance analysis, simple basic, no good? Maybe.
Method 3 was an "oscillator", again basic stuff agreed, but utilised by many.
Method 4 was a "EMA" as a trendline support, again used successfully by many.
One P&V analyst joined the fray, and struggled also.
5 methods, all TA, all failed miserably. All ran a stoploss, all caused losses, currently price ticking up slowly $14.50 odd.
You yourself declined to participate, citing secret methodology, or some such. Therefore we shall never see a true expert at work, utilising the cutting edge of TA.
However, as you are insinuating that a "competent" Technical Analyst would have surpassed my ineffectual blunderings, tell me;
Would he have had a stoploss?
If yes, ........Why?
If so competent why the requirement for a stoploss?
On my 4 live trades posted on this site.................none run a stoploss.
Why?
Because risk management does not = STOPLOSS
TA has no edge.
It is chasing momentum plain and simple, that momentum can change in a heartbeat, that is why you require a stoploss.
If there was a true quantifiable, statistical edge, stoplosses would probably be redundant.
I do the work that is necessary to succeed.
Others could emulate if they chose to, data is freely available.
I do have a profession, in addition to the running of my ( smallish fund ) ever heard of TIME MANAGEMENT.
SOCCY BABY.
Your considerable experience...................
But in essence I accept that with time and practice, a certain "feel" for the market will develop.
But, as "feel" is prone to being tempermental, stops are still required, as you are trading momentum, and for you "THE MARKET IS ALWAYS RIGHT".
For me, the market while not irrelevant, is not the final arbiter of my decisions.
No just you technical boys.
cheers d998
darktone
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There you have it... This is the STOPS function fullstop! This thread could be sooo simple!
Now how about plain speaking thread dedicated to the emotional strength needed to renter without a thought if your overall view is proved to be still correct!
That, i suspect is the cause of most resentment put towards STOPS.
roguetrader
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Surely the system you allude to is called investment, reliant plain and simple on accurate fundamental analysis. The lack of stoploss of any type, assumes in theory that you must never be wrong, that you will run a trade until it proves you right, as such the system will be capital intensive, tying up capital for long unknown periods of time, thereby exposing you to another, infrequently mentioned and unquantifiable risk, time+chance.
The longer the time period capital is exposed to the financial market, the greater the risk of encountering the unknown. September 11th was an obvious now infamous example of this, however, another such example, less dramatic but far more prevalent are a whole host of unknowns that fall into the category of corporate wrong-doings. Fundamental analysis, not unlike TA, makes use of past information, along with projections and assumes to a large degree that nothing detrimental will occur in the future to change that picture.
The longer your timeframe, the more unknowns you will encounter and therefore the greater your unquantifiable risk.
The bottom line, get it wrong sufficiently frequently and the end result is death. Use of stoplosses in some form or another may bring that about sooner, but the end result will be the same.
The longer the time period capital is exposed to the financial market, the greater the risk of encountering the unknown. September 11th was an obvious now infamous example of this, however, another such example, less dramatic but far more prevalent are a whole host of unknowns that fall into the category of corporate wrong-doings. Fundamental analysis, not unlike TA, makes use of past information, along with projections and assumes to a large degree that nothing detrimental will occur in the future to change that picture.
The longer your timeframe, the more unknowns you will encounter and therefore the greater your unquantifiable risk.
The bottom line, get it wrong sufficiently frequently and the end result is death. Use of stoplosses in some form or another may bring that about sooner, but the end result will be the same.
Nobody can ever get it right all of the time in any form of trading. It's a numbers game - either you are right more often than you are wrong or you are right with a greater degree of success than you are wrong with a lesser degree of loss.roguetrader said:
A stop loss just limits your potential downside and preserves your capital to continue trading. Sure there are a number of occasions where your stop loss is hit and then the market comes back in your favour but that is just the nature of the game.
One of the fundamental issues here is strategy. Do you use long stops to preserve a trade in order to catch a trend or do you employ short stops to catch a movement, scalp a profit and then exit via closeout ot through the use of a trailing stop. A number of different strategies in this context may be used simultaneously or selectively in different markets.
What is true is that the longer your capital is tied up in a trade the greater is the risk of loss and also the opportunity to profit. A friend of mine has had a short on a Dow December contract at 10800 since March. Would he have made more profit by closing it out when it hit 10,000 in April or will he make more profit on a lower close later this year ? Conversley might he make a loss if the market achieves a new high between now and the end of the year ? Only time and events will determine that outcome !
Stop loss is only way to calculate risk/reward that comes out in your favor...without risk/reward in proper balance, take your money to the local bank and get the safe 3% per annum....otherwise, you will lose it...if u trade it....Speaking of intraday trading only......
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