Stop Loss

Well, the market moved where I was expecting it, generally, today. Unfortunately, there was such a huge price variation, that a couple of times I was stopped out before the market went my way.

As a very new trader, I would be very interested to know peoples' thoughts on how to manage this situation.

use wider stops. what is you time frame?

I might recommend setting the stop at the previous day high or low depending on your position, and add a dozen of pips to avoid accidental stop on spikes. Or you can just look at the latest significant high or low, preferably on a timeframe not less than 1 hour. Again, what is your timeframe and what is your trading style? I mean, do ou look for trends or trade short swings?

FutureMillionaire? said:

Well, the market moved where I was expecting it, generally, today. Unfortunately, there was such a huge price variation, that a couple of times I was stopped out before the market went my way.

As a very new trader, I would be very interested to know peoples' thoughts on how to manage this situation.

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Could do with knowing roughly what your trading method/style is before making comment on your stops.


Thanks

Damian

I'm trading 30 minute GBP/USD and looking for breakouts. There were some enormous 'wicks' on the candles, so I'd have needed a very distant stop to avoid being stopped out - and I'm not confident enough, at the moment, to risk that much.

FutureMillionaire? said:

I'm trading 30 minute GBP/USD and looking for breakouts. There were some enormous 'wicks' on the candles, so I'd have needed a very distant stop to avoid being stopped out - and I'm not confident enough, at the moment, to risk that much.

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There really are no easy answers to this, and as your finding out, opinions will vary. I really dont like to offer advice about something as personal as trading, particularly as I dont know your style, experience or circumstances but from your posts theres three things you really need to do.

1) I know it sounds obvious but you need to be 100% confident that you have a system or perhaps more accurately a method or framework with positive expectancy, if you dont have a demonstratable edge, no amount of fiddling around changing the size of your stops is ever going to help. Tradings hard enough even when you know 100% that you have an edge. Without an edge your only choice is to use big stops and die quickly and painfully, or use small stops and die slowly and painfully


2) I'll probably take some flack for this but I'd also seriously consider reducing your position size until you are confident.

3) Take a look at what economic data might be being released during the day, and the effects this might have on the currency your trading, theres usually a good reason for those enormous wicks !

On the plus side, at least your considering and trying to manage risk, which is definately a step in the right direction.

FutureMillionaire? said:

Well, the market moved where I was expecting it, generally, today. Unfortunately, there was such a huge price variation, that a couple of times I was stopped out before the market went my way.

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You say you're looking to trade 30m frame breakouts on the Cable.

Breakouts of what? The market didn't move anywhere yesterday.

It remained inside the Tokyo session range for the best part of the day. Sure, it popped to the topside on the back of the Stateside CPI & had another peek above the line as London wound down for the day, apart from those lame attempts, it merely slid around aimlessly inside the range.

Looks like you need to lay down one or two ground rules regards your specific trigger parameters. Maybe think about linking your b/o opportunities to some sort of confirmation structure, like a pullback or re-test of the b/o?

You'd then have some kinda structure/base in which to wrap your stops & risk around.

If you plan on triggering blind breakouts on this pair, without any real or defined template in place, it'll squeeze you to death. Cable is a bitch for spiking & faking out around obvious b/o levels. Be careful how you play it!!

One such example Wednesday on your timeframe, offered a typical range bust of the Tokyo session.

Zooming into the 15m would have amplified the bar print around the line penetration. Not only do these types of execution tip the odds slightly in your favor, by allowing price to show it's intent, but also affords you a bit more leeway regards the placement of stops in case it double fakes you?

That way, you can better test & guage whether this type of activity suits your style of trading and/or whether the consistant opportunities are worthy of merit?

Just a suggestion. There are of course other forms of breakout opp's, & this instrument is pretty cool at offering them up - you just need to plan a structure around them which best suits your style (risk-capital deployment etc).

FutureMillionaire? said:

As a very new trader, I would be very interested to know peoples' thoughts on how to manage this situation.

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Have you begun to formulate any kind of plan or structure based around your desire to trade breakouts?

If you’re intent on utilizing a breakout strategy as your primary mode of execution, then if you haven’t already done so, maybe a suggestion would be to build some sort of testing/research model around it.

Initiate an online log and/or a hard paper diary to record your findings? Divide it up into sections & map your research model across the differing breakout opp's you're intending to trade.

You need to test your findings based on the price reactions & activity on or around these differing breakout opportunities to see how you might develop your strategy to take advantage of them.

For instance: The range (asian or otherwise) b/o might reveal more positive returns when it reacts within an overall trending rather than a ranging environment? How well does it stand up to accompanying price filters? By that I mean if you use math based calc’s (Fibs/Pivots or maybe a % based s&r model), then do these levels offer any additional benefit to entry/paring/exit when price reaches them?

How does the b/o perform when price is basing or consolidating? Are there many false spikes, or does it have a tendancy to over cook on the initial break & fake you out?

Which type of b/o is most suited to your style or psychological stance? Does the overnight range appear cool, or does the break of a larger timeframe range offer more positive opportunities to pare out & trail? Essentially what you’re seeking is whether your preferred instrument possesses any ‘typical’ behavioural traits when confronted with differing scenario’s.

These types of research need to be identified & recorded. They’ll offer you a sound template from which to base a strategy around. It will also determine how you set your r/r & stake sizing matrix. By diligently recording these basic plan elements, you’ll better ascertain which type of environment & opportunity suits your aims & expectations.

By grouping your research into some kind of regimented format, it will be easier to test across a variety of instruments. So, you can test the Euro/Swiss as well as the Cable. That way, you might conclude your strat or a certain section of it, performs slightly better on the Euro than Cable? This marries well with the comment 2 paragraphs back regards recognizing behaviour traits. I can appreciate the attraction of Cable, given it’s larger daily range prints & propensity to overcook the trend/range extremes etc, but it requires a slightly different management tecnique than say Euro, which tends to adhere more favorably to technical levels.

You won’t determine these conclusions however, until you formulate a definite & workable strategy template.

Any form of basic sensible preparation & study will immediately put you a couple steps ahead of the majority of retail traders out there. It’s what you do next which will determine how quickly you progress. But establishing a good, basic template & coming to the table with a definite aim (which you appear to have arrived at already), is the perfect start! Continue testing, re-testing & remaining flexible to the markets ever changing personality. It will assist in maintaining consistency!

I'm sure if you ask around or maybe do a search, you'll unearth more info on devising a trading plan or structure. If you have questions, I'm sure other members will step forward with pointers etc.

It takes a whole lot of time to arrive at a satisfactory level of competance – but it’s sure worth the effort. Don’t be in a hurry to step in with live $$’s either. Test your theories thoroughly & rigorously before entering your live trading book. The markets will still be there when you’re good & ready to take em on!

Just my twopence. So far entry rules and points have been discussed, but I'd like you to pay most attention to your exits. Even if you had the best entry one could do that day, it could turn into nothing or even to a loss if you don't know how and where to jump off. For instance, your expect a new strong trend to begin, you entered and gained some 10 pips but the market conditions changed, thus maybe it's worth exiting with these 10 pips instead of waiting for a stop-loss. But in another case it's worth staying in the market waiting for your target to be hit if the conditions hadn't changed. Generally speaking, it doesn't matter where you enter at all, you can enter even throwing a coin, but you ought to have strict exit rules. Traders mostly have a number of exit rules and apply one pattern or another depening on situation, but these rules should be consistent and you don't change them on-the-fly under any circumstances!

Doctor Leo said:

Just my twopence. So far entry rules and points have been discussed, but I'd like you to pay most attention to your exits. Even if you had the best entry one could do that day, it could turn into nothing or even to a loss if you don't know how and where to jump off. For instance, your expect a new strong trend to begin, you entered and gained some 10 pips but the market conditions changed, thus maybe it's worth exiting with these 10 pips instead of waiting for a stop-loss. But in another case it's worth staying in the market waiting for your target to be hit if the conditions hadn't changed. Generally speaking, it doesn't matter where you enter at all, you can enter even throwing a coin, but you ought to have strict exit rules. Traders mostly have a number of exit rules and apply one pattern or another depening on situation, but these rules should be consistent and you don't change them on-the-fly under any circumstances!

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Great post Doctor Leo,

I often get out of a trade with 10 pips if the move isn't that strong or falters at a certain level and then jump back on after a small retrace has happened, buy again on pullbacks etc. Don't you just hate watching 10 or 20 pips turn back on you and you have nothing for watching the screen for two hours Catch lots of small moves during the day instead of always hoping for 50pip moves

Well, I must be doing something right.

I've been trading the ups and downs on the GBPUSD all day, taking 20 or less pips each time - but everyone a winner. Then, when there was a huge breakout, I rode it, moving my stop up behind it as it went.

I've increased my modest 'pot' by 50% in a single day.

I don't suppose this will happen every day, but it sure is encouraging.

FutureMillionaire? said:

Well, I must be doing something right.

I've been trading the ups and downs on the GBPUSD all day, taking 20 or less pips each time - but everyone a winner. Then, when there was a huge breakout, I rode it, moving my stop up behind it as it went.

I've increased my modest 'pot' by 50% in a single day.

I don't suppose this will happen every day, but it sure is encouraging.

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Sorry future but you're looking at everything the wrong way, The fact that you made 50% in a day should really shock you, no not the profit but the amount you had to risk in order to make it.

This game is all about risk-adjusted returns, ie how much risk did you take to make a given return. And to make 50% in a day just trading up/down means that it won't be long before you lose 50% in a day. Then as many don't realise (until after the fact) you've got to make 100% just to get back to square one.

FutureMillionaire? said:

Well, I must be doing something right.

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You would do well to heed Anley's advice.

Had you returned & informed folks you'd increased your pot by 1-2% based on a sound & tested action plan, it would suggest you posses an appreciation of not only risk, but money management specifics. You'd also be on track to further cement & progress your strategy which would undoubtedly include a clear & precise contingency for when events don't pan out as you expect them to.

Mildly dismissive comments (such as the one above) & bold statements of sharp, excessive account compounding merely confirm your trading naivety.

Playing tag for small change with Cable is fine in appropriate circumstances. That beast will allow you to run around it's feet & prod it now & again. But adopt that tactic too often & it'll stomp you without a second glance!

I sincerely hope you continue to progress your trading endeavors, & good luck to you.

Heads I win tails you lose ?????

FutureMillionaire? said:

Well, I must be doing something right.

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Or you are just lucky - on this occasion

Trading involves risk and probability and, for a while, the coin might always flip heads up, but over time it does not.

Please heed ampro's and anley's sage advice

Charlton

Yes I do understand, but initially, I'm really just playing ... using very small sums. Once I've some experience, and start using larger stakes, I shall only be risking a smaller percentage of a larger working 'pot'.
I've heard that one should only risk 2% of your 'pot' on any one trade. I shall be applying that once I get going properly. For the moment, I don't really have a 'pot' proper, just the money I used to fund the trading account. If I lose it, it's not the end of the world (although, for my own pride, I hope not to), I could just replace it.
I think I gave the wrong impression with my flippant comment.

FutureMillionaire? said:

Yes I do understand, but initially, I'm really just playing ... using very small sums. Once I've some experience, and start using larger stakes, I shall only be risking a smaller percentage of a larger working 'pot'.
I've heard that one should only risk 2% of your 'pot' on any one trade. I shall be applying that once I get going properly. For the moment, I don't really have a 'pot' proper, just the money I used to fund the trading account. If I lose it, it's not the end of the world (although, for my own pride, I hope not to), I could just replace it.
I think I gave the wrong impression with my flippant comment.

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No, it's all about learning, better to make these kind of mistakes when you're starting out. So in that sense you ARE going about things in the correct fashion.

2% is a pretty good amount to risk per trade, start going over that level and the risk of ruin probabilities start increasing. Also, think about this - if you can make 50%-100% in a YEAR, imagine where your fund (even if it starts out small) could be in 5-10 years?

Also, don't forget to factor in the negative impact of the costs of trading in the short term, bid-offer spread + slippage on stops because that's a real factor for the majority of day-traders. In fact it's possibly the main reason why so many don't make a profit over time.

In my mind the equation for the average day trader (stocks, futures, fx etc) is -

(small profits - small losses) - costs = Losses

Good luck anyway :cheesy:

anley said:

my mind the equation for the average day trader (stocks, futures, fx etc) is -

(small profits - small losses) - costs = Losses

Good luck anyway :cheesy:

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I agree with you, when I started trading I was day trading and eventually found out that day trading for me was a bad strategy too much risk for small profits, now i use my day trading abilities to enter weekly positions and achivied a 1:40 risk reward ratio, for that reason i encourge people to day trade but with a solid objetive relating to "the plan". I speak on personal experience and mean no harm to people with contradicting thoughts.
Regards.

FutureMillionaire? said:

I'm trading 30 minute GBP/USD and looking for breakouts. There were some enormous 'wicks' on the candles, so I'd have needed a very distant stop to avoid being stopped out - and I'm not confident enough, at the moment, to risk that much.

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Hi Future,

Wide stops don't have to mean greater risk.

If you risk a fixed percentage of your total capital on each trade, your risk can be the same for every single trade no matter how wide or narrow your stop is.


Thanks

Damian

FutureMillionaire? said:

Well, I must be doing something right.

I've been trading the ups and downs on the GBPUSD all day, taking 20 or less pips each time - but everyone a winner. Then, when there was a huge breakout, I rode it, moving my stop up behind it as it went.

I've increased my modest 'pot' by 50% in a single day.

I don't suppose this will happen every day, but it sure is encouraging.

Click to expand...

Be cautious. This first feeling of 'defeating' the market is very dangerous because is seeds the confidence of you ruling the market at the very heart of a trader. Take it for granted that sooner or later (and I'm afraid rather sooner than later) the market will show that it's IT who rules YOU...

If you're into all this just for gambling then OK, this way of playing is neither better nor worse than a slot machine, but if your alias at this forum just slightly represents what you inted to be, then I think you should start off with quite another matter - namely, money management. And giver there are today brokers or bucketshops (for a small deposit it really doesn't matter where to trade) which allow obeying any MM you like with, say, a hundred bucks, it's heaven for a keen apprentice. This is the ONLY way you can really learn to trade profitably on regular basis, otherwise everything you do now has nothing in common with learning. Only after aquainting with MM you should learn how to make a robust trading system, and believe me, your entries are matters of 4th or 5th importance.... Good luck to you anyway.

PS Why don't you trade a demo if you're just learning? Like to get exalted?