Stoploss.......Theory of Failure.

ducati998 · Jun 10, 2005

Stoplosses.............
Have an interesting history. Now an integeral component of money management, they take their origin from professional gambling money management.

If that has never given you pause for thought, possibly it should have.
The acceptance of the stoploss as a valid adjunct to a "trading" system or methodology raises the logical conclusion that the underlying enterprise is subject to loss, and serious loss, so much so that the Stoploss is a necessary component.

Any business enterprise that relies on the ruthless cutting of losses to provide a "profit" has serious flaws.

Charts, P&V, Technical indicators, take your pick are all inherently worthless without the addition of the ubiquitous stoploss............what does that really tell you?

It says to me find something that guarantees you make money on aggregate, without the need to ruthlessly execute a tool stolen from professional gambling.

cheers d998

nine · Jun 10, 2005

Ducati, do you have a suggestion for the alternative.

It seems to me that a stop loss says that this is a statistical game. And that the stop loss is your defined "worst case" loss for this trade and gives you one of the factors you need when you apply money allocation (management) to your trading.

wasp · Jun 10, 2005

I don't use stoplosses (other than the automated one provided by capital spreads).

My systm/rules of trading tell me when I should enter and exit a trade, therefore, my stop is indicated by the market, not a predetermined figure. IMHO it doesn't make sense to use them. each trade is different and consequently a stoploss can ruin what would be a good trade.

TWI · Jun 10, 2005

"Stops are for poofs"
- Famous last words.

Maybe we should do away with a profit taking strategy also.

Would make things a lot simpler to follow.

wasp · Jun 10, 2005

I'm not saying "stops are for poofs", just that sometimes a strategy showing that the decision to exit is correct rather than a predetermined maximum loss is better.

Same as with profits, I don't have a predetermined goal, the market shows when the exit is correct.

roguetrader · Jun 10, 2005

The compulsory use of seatbelts has been in force in the UK for a number of years now, it's introduction was designed to reduce death and serious injury on our roads, by your logic people should probably stop driving.
That aside, can you please provide a definition of a stoploss to whci you are refering, so we can be sure we are talking about the same thing. Probably sounds an odd request but you'd be surprised what variance there is between what people consider a stoploss as opposed to something else

wasp · Jun 10, 2005

Driving is something else.

I consider a stop loss something that cancels my trade at a set level.

The rules I use to trade tell me when I should be short or long. If I'm in a trade one way and I believe I should be the other, then I exit and reverse.

I appreciate why people use them and how it makes it easier to plan your profit / loss potentials and to keep your % in check, but I have a stoploss at 80 pips and very rarely take a loss of more than 20.

The markets are not straightforward and I don't believe a 'set amount' for loss/profits are a sensible ideal. Each trade is different and rather than cap my potential, I let the market tell me my next move.

roguetrader · Jun 10, 2005

Driving is indeed something else but the analogy holds up, both are designed to prevent catastrophic or overly undesirable outcomes in a situation where you realise you can be wrong, you can make a mistake with damaging outcomes. The question of definition does have merit as my definition is different from yours, as in my view you also use a stoploss, not necessarily as many books define them but a stoploss none the less.
A stoploss in my definition is a point in time or price, where the initial percieved outcome is no longer viable, or circumstances that prompted the entry of a trade have changed adversely.
I do not use fixed price stoplosses either.

SOCRATES · Jun 10, 2005

ducati998 said:
Stoplosses.............
Have an interesting history. Now an integeral component of money management, they take their origin from professional gambling money management.

If that has never given you pause for thought, possibly it should have.
The acceptance of the stoploss as a valid adjunct to a "trading" system or methodology raises the logical conclusion that the underlying enterprise is subject to loss, and serious loss, so much so that the Stoploss is a necessary component.

Any business enterprise that relies on the ruthless cutting of losses to provide a "profit" has serious flaws.

Charts, P&V, Technical indicators, take your pick are all inherently worthless without the addition of the ubiquitous stoploss............what does that really tell you?

It says to me find something that guarantees you make money on aggregate, without the need to ruthlessly execute a tool stolen from professional gambling.

cheers d998

I really don't understand where it is you get these stupid ideas from ducatti.

Any enterprise that involves risk must have provision for dealing with that risk.

You cannot have profit without risk.

Risk is further accentuated when the enterprise deals in a product which is in some way perishable.

If you go to a fruit market, you will see how it is that the costermongers think nothing of tossing out the odd item of fruit that has begun to perish or has ben pecked at by a bird or is in some other way not acceptable.

They just toss them out. They don't wring their hands and moan because they have to toss out a few fruit. It is within the nature of the business that this is something they have to do so as to prevent a potentially bad situation from getting worse.

In any business where there is risk either real or implied, the provision of measures to countermand that risk are imperative.

Trading is no exception.

Don't for the goodness sake post any more of this nonsense as it only serves to confuse and mislead beginners, and that is not fair. If you have more silly opinions like these it would be best if you kept them to yourself and not posted them in a public forum for everyone to read.

But, if you insist on posting silly nonsense at least give newbies a chance by underlining nonsense such as this with some sort of caveat, so that they know it is not to be taken seriously, please.

StkWinGuy · Jun 10, 2005

Another view

There are two things about your conclusion that I would like to comment on.
First, a stop loss is an insurance tool to assure that you will conserve enough capital to be around when the right situation does comes along - there is no quarantee WHEN that will occur.
Second, there are virtually no guarantees for anything in life. The chance for a big gain, by definition, is accompanied by a big risk of loss. If you want to try for big gains you need to protect yourself from the possibility of a big loss. That's where the stop loss comes in.
If you want an investment that "guarantees you will make money" in the aggregate, you need an investment that is riskless or nearly riskless. The "cost" of that riskless guarantee is a materially reduced , and most times negligible, return on your investment if you factor in inflation and taxes.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

ducati998 said:
Stoplosses.............
Have an interesting history. Now an integeral component of money management, they take their origin from professional gambling money management.

If that has never given you pause for thought, possibly it should have.
The acceptance of the stoploss as a valid adjunct to a "trading" system or methodology raises the logical conclusion that the underlying enterprise is subject to loss, and serious loss, so much so that the Stoploss is a necessary component.

Any business enterprise that relies on the ruthless cutting of losses to provide a "profit" has serious flaws.

Charts, P&V, Technical indicators, take your pick are all inherently worthless without the addition of the ubiquitous stoploss............what does that really tell you?

It says to me find something that guarantees you make money on aggregate, without the need to ruthlessly execute a tool stolen from professional gambling.

cheers d998

RUDEBOY · Jun 10, 2005

'Any business enterprise that relies on the ruthless cutting of losses to provide a 'profit' has serious flaws'?.....Ducatti, i have read and thought about this statement over and over again, as so to give you the benefit of the doubt. I honestly don't mean to be sarcastic or condesending, but, where did this one come from, matey? The only reasoning i can muster up is this. You may be trying to say that, trading as a business, seems to have an inherent 'high risk' stigma attached to it! So what are we all doing trading? Is that what you meant? I don't know. But stops, wether or not mental or market, are needed. Its a simple business tactic. Rudie.

RUDEBOY · Jun 10, 2005

Ducatti, have you ever considered the concept of 'buy to own'? What about, 'selling without owning'?

RUDEBOY · Jun 10, 2005

Where do you draw the line (loss wise)? Rhetorically!

kriesau · Jun 10, 2005

SOCRATES said:
I really don't understand where it is you get these stupid ideas from ducatti.

Any enterprise that involves risk must have provision for dealing with that risk.

You cannot have profit without risk.

Risk is further accentuated when the enterprise deals in a product which is in some way perishable.

If you go to a fruit market, you will see how it is that the costermongers think nothing of tossing out the odd item of fruit that has begun to perish or has ben pecked at by a bird or is in some other way not acceptable.

They just toss them out. They don't wring their hands and moan because they have to toss out a few fruit. It is within the nature of the business that this is something they have to do so as to prevent a potentially bad situation from getting worse.

In any business where there is risk either real or implied, the provision of measures to countermand that risk are imperative.

Trading is no exception.

Don't for the goodness sake post any more of this nonsense as it only serves to confuse and mislead beginners, and that is not fair. If you have more silly opinions like these it would be best if you kept them to yourself and not posted them in a public forum for everyone to read.

But, if you insist on posting silly nonsense at least give newbies a chance by underlining nonsense such as this with some sort of caveat, so that they know it is not to be taken seriously, please.

Well pigs will fly !

That is the first sensible and intelligent post that I have ever seen from you. Your argument was perfectly sound and reasonable but then why do you have to embellish it with the collateral, pompous put down !

frugi · Jun 10, 2005

Any business enterprise that relies on the ruthless cutting of losses to provide a 'profit' has serious flaws

Hi ducati,

Losses are necessary, unavoidable costs entailed in the business of trading, much as staff costs are for a supermarket giant. The profit is not "provided" by the cutting of losses: losses are cut to ensure that the profitable trades are not significantly eroded. In the same way the cutting of staff costs does not "provide" the profit for the supermarket giant, as the profit comes from selling products. A profitable business that ruthlessly cuts its costs tends to do better than one that doesn't, surely?

SOCRATES · Jun 10, 2005

kriesau said:
Well pigs will fly !

That is the first sensible and intelligent post that I have ever seen from you. Your argument was perfectly sound and reasonable but then why do you have to embellish it with the collateral, pompous put down !

I can assure you that pigs do not fly. I can ascertain this by having flown a lot myself. My fondness for vintage aircraft is well known. And when you fly a lot, you develop a skill that enables you to view everything accurately from a very great height. This alone carries several implications, even without yet dropping anything.

Part oif the skill acquired is very useful in spotting lots of things that others less skilled, or not skilled at all, or distracted, or misdirected, or misinformed, or disinformed, or misled, or just plain ignorant are liable to miss, and in doing something about it for the benefit of others who somehow miss the significance of the obvious.

For this reason alone I am able to single out the anomaly from a great height, like a bird of prey would be able to. Some of these anomalies are inadvertent and some are wilful. The inadvertent ones can be excused but the wilful ones not, specially if they are apt to cause problems to people in their reasoning when contemplating ideas such as the ones he puts forward.

As for you only just beginning to have the very first dawn of a realisation as a consequence of reading this particular post, if you were to read all my posts your realisations would be complete, leading you to the conclusion that all is not as it appears to you, indeed the very opposite.

chump · Jun 10, 2005

I think (and I may be out by a couple of years) as far back as 1930 Gann was extolling the use of stops on the basis that experential observation lead him to believe that it was essential to place a stop where if struck you would know you were wrong in your judgement as to the probability of success of a trade..what's that phrase "there's nothing new under the sun"..little changes does it ? ...as to the phrase 'Any business enterprise that relies on the ruthless cutting of losses to provide a 'profit' has serious flaws'?.....I would suggest that the key word is "relies"..it really is not a question of rely so much as a component part that simply recognises the reality that we as humans get it wrong sometimes...perhaps Mr D is not human and therfore does not suffer from this human condition

RUDEBOY · Jun 10, 2005

Socs, high five......what more can i say?

RUDEBOY · Jun 10, 2005

By the way if you want to post trades, thats up to you? I stick to the old addage, 'never mix business with pleasure'! Know what i mean? Rudie Doody woodie! Friday nights, eh!

SOCRATES · Jun 10, 2005

chump said:
I think (and I may be out by a couple of years) as far back as 1930 Gann was extolling the use of stops on the basis that experential observation lead him to believe that it was essential to place a stop where if struck you would know you were wrong in your judgement as to the probability of success of a trade..what's that phrase "there's nothing new under the sun"..little changes does it ? ...as to the phrase 'Any business enterprise that relies on the ruthless cutting of losses to provide a 'profit' has serious flaws'?.....I would suggest that the key word is "relies"..it really is not a question of rely so much as a component part that simply recognises the reality that we as humans get it wrong sometimes...perhaps Mr D is not human and therfore does not suffer from this human condition

Actually that is a very insightful comment on the part of WDG. I will be commenting later.

Stoploss.......Theory of Failure.

Experienced member

Senior member

Legendary member

Senior member

Legendary member

Senior member

Legendary member

Senior member

Veteren member

Newbie

Experienced member

Experienced member

Experienced member

Experienced member

1

Veteren member

Senior member

Experienced member

Experienced member

Veteren member

Similar threads