STOPS: where do u put yours?

[anley]

There seems to be the great illusion that day trading offers less risk than position trading. The costs involved and limited profits are the nemisis of most day traders so they end up losing over time, but that doesn't matter because 'they always used tight stops and therefore had little risk'. Death by a thousand cuts so to speak.

Stop being taken in by the media, the brokers, the software companies and everyone else who's job it is to try and get people to trade as much as possible so transfering your money into their pockets. Sit back, view the markets over weeks and months and I'd hazzard a guess that at least 60%-70% of you would do so much better.

And before anyone replies saying how much money they're making day-trading a) I'm not interested and b) there are always exceptions to the rule.

 

[grubs50]

So taking all ur views into consideration.....how does one decide on placing a stop 4 swing or position trading index futures as opposed to day trading.............same or different methodology and attitude?

 

[oatman]

I don't think there's a fixed stop unless it's a max on money management. Surely each trade is assessed before entry. You must have an idea what you're looking for from a trade and therefore how far it might go against you before your criteria for entering are wrong or you are uncomfortable in the £$£$ stakes.

 

[grubs50]

So Oatman, does that mean u would move it further back if it isn't a max on money management if u still believe things would turn in ur favour eventually?

 

[darrenf]

Personally, I use the value of the 14 period ATR as my stop level. I figure that if the trade moves this level against me, then I have got it wrong.

I never move the stop backwards.

I do however, move the stop to break even after a certain length of time or if the position moves a certain amount in my favour.

I also close out a losing trade after a certain length of time even if it has not hit my original stop.

I don't think there are any right or wrong answers to setting stops, you just have to observe/ test what will keep you in the trades you want to be in, without being too wide that it reduces your risk:reward to an unacceptable level. Easier said than done!

 

[grubs50]

that is one thing i may start doing, closing it out after a period of time whether it hits the stop or not, instead of waiting and hoping things reverse......nice one darrenf!

 

[darrenf]

instead of waiting and hoping things reverse

It's something I started doing after observing exactly that!

I've now reduced the % of trades hitting my stop to about 25%.

You do sometimes miss the odd one that does take off, but more often than not, if you are left hoping it will take off after a certain length of time you are best off out IMO.

I decided on the length of time by looking at charts of previous trades. You will need to see what works best for you and the market you trade.

 

[grubs50]

I will definitely give the idea a try cos most of my losses have been cos i have held on 4 too long (hanging in till the stop is hit) hoping things would reverse when i could have closed the trade and initiated another one.

 

[oatman]

All I'm saying is that you must have assessed your risk before entry. So if you enter the Dow for instance looking for 200 points, you must have have noticed the amount it might reverse before actually making you wrong. Does it often reverse 20,30 or 50 points but continue the trend? Can you handle that reversal? If not, then the trade/market/volatility is not for you. The alternative would be to look for a smaller play with a closer stop but trail it when it goes in your favour. Time frame is obviously a deciding factor. All markets have different volatility.
You must feel comfortable.

 

[BBB]

Anley is bang on the button.

IMHO, I say that no one can tell you where to place your stop, as it depends on your tolerance to risk. There is no golden rule or place to put your stop, just as there is no holy grail for trade entries.

Perhaps more important in my opinion though, is to tighten the stop as soon as you are filled - reducing your risk exposure. OK, so you may get stopped out more often, but I'd rather that than hand my money over to you lot!!!!

 

[grubs50]

yes Oatman, i do take that into consideration when entering a trade and that is d exact reason y i won't move it backwards. Do u think there is always a case 4 moving it backwards at times when u feel the reversal is just temporarily abnormal (i.e a one-off situation)?

 

[darrenf]

Perhaps more important in my opinion though, is to tighten the stop as soon as you are filled - reducing your risk exposure

.

Don't really understand this. How would you have a stop loss in place before you open your position? and why would you reduce it as soon as filled? The only reason I can think for doing this would be if you got filled at a significantly different level than you intended? Can you explain please?

 

[oatman]

Probably not. In the long run, if you've done your homework, you'll be better off accepting your losses. The trouble with moving a stop when you think it might be a good idea :idea: , is that it's the moment you're most emotionally involved. You've gone into the trade stone cold.
Most traders will see different if they think of 20 points or £200.
20 points is just another trade. £200 is a fair weekend. :cheesy:
That's emotion. :cheesy:

 

[grubs50]

I try my utmost best to think in terms of points (God knows it can be difficult at times.....lol) I don't day trade so the stop involves a higher number of points!

 

[darrenf]

I dont daytrade either.

I try and think in terms of % of capital at risk. Similar to points I suppose. However, although the number of points at risk can change depending on the trade, I always try and ensure I risk roughly the same % of capital on each trade.

Each trade is therefore the same risk as the last, even if the £ at risk is higher. I'm still risking more money as my pot increases, but that's how I prefer to think of it.

 

[Trader333]

I have a fixed point at which I will exit when I enter a trade and I NEVER move my stop further away from where I first set it on any occasion ever.

To do so indicates a lack of trading discipline and will ultimately result in ongoing losses in my view.


Paul

 

[grubs50]

Does the trend affect ur Stop position i.e going short in a supposedly bullish trend..........or when u r hedging ur position?

 

[BBB]

Darrenf - Sorry, wasn't too clear was it!

Before you start entering orders, you see where you want entry, and where you will assume your risk parameter (eg low of last x bars, or $y). You get your entry and all is sweet. Your trade moves as anticipated. You get to a stage where as the trade is now in profit by $p, your risk exposure is now y+p right? Your risk exposure has now increased from when you entered the trade, assuming your stop is still where it was when the trade was initiated. Therefore, isn't it wise to reduce risk asap? Don't we get paid for the risks we assume? Therefore, the stop should be tightened to as close to our entry as possible (given volatility). The alternative is to wait for the trade to progress until the wise guys take their profit and you see price tanking for your stop - then BANG! youre out. You had a paper profit, now you have a loss.

If the trade went against you off the bat, and didn't show any signs of improvement after a very short period of time, then it would be clever (IMO) to assume the trade isn't working, so tighten the stop. Again, the alternative is to sit there like a rabbit in the headlamps, paralysed and praying the stop wont be hit, then WALLOP! You know the rest...

 

[grubs50]

BBB, very short period of time is relative to ur type of trading, isn't it? and the patience does pay off at times (not all d time as u rightly stated)

 

[darrenf]

Ok I understand.

I do the same thing.

ie after trade has moved x% in favour, tighten stop.

Also, after x amount of time, tighten stop or exit.

Cheers

Darren