Are stops really a good idea?

[megamuel]

Guys are we talking about just standard condoms here? What about Fetherlite, ribbed, flavoured, glow in the dark, extra lube? Narrow it down then I can tell you how they compare to stop losses.. And if condoms are like stop losses, what is the sexual equivalent of a profit? Anyway, back to this guys idea, I guess I have a few trades that are similar (I'm a newbie by the way so don't laugh! Plus these are nothing to do with the strategy I am working on just a little sideline!). For example, I have a spread bet £10 per point long on Taylor Wimpey.... OK, they may well be screwed and go bust, if this is the case, I can only loose £160 (I think!). But if things work out they might trade higher and I'll make a bit. I guess I am using 0 as my stop loss. Now I have said that, you wait for the announcement tomorrow that they have gone into administration! I also have another long trade on Kazakhmys... Only £2 per point, most I could loose is about £500, but if they ever reach the price they were trading at last year I could potentially make about £3500. Definately not the brightest ideas in the world but something to hold and see how it plays out. Trader Dante I like your style and admire your big balls. Now I am going to do the same as you and blame you completely if you are wrong!!! Only joking!

Sam.

P.S. Sex analagies are great, keep them cumming (lol!)

 

[megamuel]

I do appologise - I should have started my above post with "Guys and Girls". Sorry uktradergirl

Sam.

 

[KillPhil08]

MrG is a tranny

 

[rathcoole_exile]

why not use a safety stop but then use a resting Buy Stop to get back in Long again at your point of entry once price comes back to you ?
that would certainly limit your drawdown, but wouldn't eliminate the need for patience and discipline ?

 

[Skill Leverage]

Have you ever noticed in Las Vegas that even on odds of 51% (blackjack) the house is making a killing? The reason is this; you trade your valuable and limited money, that you only have so much of, for worthless chips. The casino has lots of plastic chips, in fact an endless supply. As the game proceed both you and the house swing up and down, but at some point, if you play long enough, statistics say you will temporarily be down so low you can buy no more chips. You are bust, and you go home broke and the casino has ALL of your money. If you could have played on, statistically a new swing upward would be likely, but you must stop when you are broke. This changes the odds way in the house's favor.

I set up a simple simulation on a computer with a game 60% in my favor. It would randomly pick number 1 - 10, if it was 1-6 I win. If it was 7-10 the house wins. It turns out if I don't have enough money to start I will go bust before the enviable win that 60% odds will eventual give me.

In the book Trade Your Way to Financial Freedom this same experiment is listed as proof for money management. But if you think about it, a stop loss order is the same concept as trading too much of your account. With a stop loss you are tilting the odds in the house's favor. A stop can be though of as a mini "going bust" where you are forced out. A stop, in effect, is a forced sell low, after you bought high.

I ran a simulation on a simple breakout trading system. The data I used was from a very volatile and down trending market, but the system made money. Then I programmed in a stop loss. The tighter the stop, the more the system lost. It was not until I set the stop at 2.5 times the average daily price moment, that I got no hits on the stop, and the system became profitable again.

Are stops really a good idea? I would like to hear from experienced traders.

This post is preposterous; why do you think casinos have a maximum bet imposed on all games? If they didn't any fool could employ Martingale strategy at a roulette table and make a fortune. If your plan is to enter a position and just wait for the cyclical nature of the markets to bring you into profit, then A) you're retarded, and B) you have so much money you should be having dinner with Buffet on a yacht somewhere rather than sitting in front of a computer.

 

[Daytradingit]

Are stops really a good idea? I would like to hear from experienced traders.

If you don't know the answer than you have 2 choices:
1. Find out by trading.
2. Research the answer by reading top traders (books etc...)

The answer will be the same.

 

[bmaber]

If you don't know the answer than you have 2 choices:
1. Find out by trading.
2. Research the answer by reading top traders (books etc...)

The answer will be the same.

Well the answer SHOULD be tight Stops are a great idea. All the investing books and most traders (like the one here) swear by them. But I am experimenting with it, with my real dollars, and it always seems to be either a tight stop that takes me out just as things would have got better or its a wide black swan stop that so far never triggers. Now the wide stops I understand, I set those if I stay in the market but need to leave my screen for a moment, or more. However I am really starting to wonder about tight stops, so far they are just creating little draw downs, like getting nibbled to death by ducks.

I also set stops once a trade works out and keeps going up, I don't mind setting a stop at my get in so that I know the very worst that can happen is break even. Of course you can't do that until you are well above the noise level, and when you set it, do you go for break even? or do you try to insure some profit? Then the game becomes how high because again if you are too high you will stop out, just as it retraces and gallops on with the trend.

 

[Daytradingit]

Keep in mind that stops should not be set arbitrarily, they should be set at relevant levels just beyond important support/resistance in the form of price, ma's etc...arbitrary, extremely tight stops are useful for scalping but that's about it.

Your initial stop is a part of your risk/reward calculation. If it is placed correctly but appears too large in comparison to the potential reward of a trade, you don't just move the stop tighter before entering the trade, you move on to another trade.

 

[new_trader]

Well the answer SHOULD be tight Stops are a great idea. All the investing books and most traders (like the one here) swear by them.

Funny that. Whenever I've mentioned tight stops people here argued and talked about volatility and magic numbers and pretty coloured lines etc...

 

[trader_dante]

Funny that. Whenever I've mentioned tight stops people here argued and talked about volatility and magic numbers and pretty coloured lines etc...

I think tight stops are important because they limit your risk and I agree with new_trader that you can be extremely proficient in your entry and get good enough that you can pick a turning / continuation point in the market where REGARDLESS OF THE VOLATILITY, you can go instantly into profit and not need a huge stop.

However, all I try to argue is that tight stops will only cause problems for new traders that do not have that level of proficiency. It will lead most of them to get chopped to pieces. I think its a far easier learning curve to be looser with your stops but take less risk until you have got to grips with your market and the way it moves and how to pick excellent entries.

I also think that regardless of your skill level, tight stops are not necessary to make a huge deal of money. You can trade with wider stops and wider profit targets.

At any rate, each to their own.

 

[JTrader]

Are stops really a good idea?

YES

 

[razor130]

To Stop or not to stop

What style of trading are you doing?...

Are you a position trader, Day trader, you really didn't specify.

If you are day trading and placing stops between the daily High and Low, and your stop is not really that far out of reach there are stop runners that go after them.

I can't remember which book or article I read that you should place your stop at 1.5 times the daily True Range.

So it comes down to money management and if you can afford to place your stop there.

I myself day trade the S&P and have had my stops taken out while in a trend and thought it was safe enoough(in the daily range). Wrong, that market came all the way back and took out my stop, then proceeded to go on in the direction I was trading.

So I went back to 1.5 times the True Range, and no problem.

A little side note: I've traded for over 11 years. Mainly back in the 90's. I quit when my wife passed on in 2001. I have just recently come back to trading this year. WOW, what a difference in the markets from 2001-2007!

I use to be a position trader, now I really do not like holding a position overnight, if such a thing really exists anymore. Global Volitility. A person has to sleep sometime.

Anyway... sorry for getting off-track.

Try 1.5 True Range for stops.
Hope this helps you.
:cheers:

 

[FXSCALPER2]

If you go long at 50 with a stop at 45 and you get stopped out and the price then goes to 20 and back up to 80, your stop was brilliant, you are just a sh!t trader. If you get stopped out at 45 all the time and the price goes up to 80, then your stop is sh!t as well as you being a **** trader.

 

[rathcoole_exile]

If you go long at 50 with a stop at 45 and you get stopped out and the price then goes to 20 and back up to 80

why not go Long at 45 or 50 again ? and again if needs be, and again if required ?
'cos too many newbies throw in the towel after a couple of stop-outs. what they lack is confidence, perseverance, fortitude and self-belief.

 

[FXSCALPER2]

why not go Long at 45 or 50 again ? and again if needs be, and again if required ?
'cos too many newbies throw in the towel after a couple of stop-outs. what they lack is confidence, perseverance, fortitude and self-belief.

Yes, and they behave as if every trade is the end of the world.

 

[trader_dante]

Yes but also because some newbies are trading products like gbp/jpy where the spread is 8 or higher. So every time you enter you are paying a lot. It's fine to enter as a professional futures trader where my spread on that is 2 but for many that are SB'ing, getting stopped out and re-entering every two minutes is a quick way to the poorhouse.

 

[Paul71]

why not go Long at 45 or 50 again ? and again if needs be, and again if required ?
'cos too many newbies throw in the towel after a couple of stop-outs. what they lack is confidence, perseverance, fortitude and self-belief.

They also lack the knowledge of what the rest of the market is doing around certain prices, they are trading chart historicals (which works), but it's not the full picture. For a newbie, it's 'wits end' trading that doesn't feel comfortable and creates all the 'psycho' problems. Imo.

 

[rathcoole_exile]

Yes but also because some newbies are trading products like gbp/jpy where the spread is 8 or higher. So every time you enter you are paying a lot. It's fine to enter as a professional futures trader where my spread on that is 2 but for many that are SB'ing, getting stopped out and re-entering every two minutes is a quick way to the poorhouse.

well then they're trading too much money from too small an account and being forced to trade with stops that are too tight ?

 

[abottoml]

There's an article on the the effect of stops in the November 2008 Active Trader mag which demonstrates exactly what you describe. It goes on to say that more often than not, if you introduce a stop to a profitable system, it is no longer a profitable system.

In fact, here it is:

The real effect of stops - AT-November 2008-8

 

[FXSCALPER2]

There's an article on the the effect of stops in the November 2008 Active Trader mag which demonstrates exactly what you describe. It goes on to say that more often than not, if you introduce a stop to a profitable system, it is no longer a profitable system.

In fact, here it is:

The real effect of stops - AT-November 2008-8

There is a guy here under the nick 'Spanish89'. Search for him and save $5.