Stop Loss Orders

[chump]

"sure there are going to be those who trade irreguarilly and who have one trading style and might end up riding trends by default - and with stop losses in place will feel they have trading by the short and curlies - but once the cycle turns - they are going to start accumilating losses and then disapear into the stop loss abyss"!...

This is a bit all encompassing I think... yes, I have no doubt there will be some individuals who don't know their tolerances for risk and /or don't know how to manage numbers to negate drawdown, but there are those who do know how to do these things who fit the first half of the statement ,but don't fit the second half of that statement... and let us also distinguish between the terms "Loss" and "drawdown"...one is realised whilst the other exists only on paper and is transformed into "loss" only by those who do fit the entire statement quoted above...

This is the best thread I have read for a while,because the differing views are giving the issue a real working over.

Cheers

 

[stevet]

chump

are you suggesting that an unrealised loss is any way different to a realised cash loss - in money terms, it definelty isnt - but one difference is that a realised cash loss shows the person is learning about trading - and the unrealised cash loss shows the person is a gambler hoping for a mistake to turn positive

one of the most important lessons in trading is getting people to just take a loss and walk away from the trade and move onto a better one - it seems to be a natural (but expensive in terms of money and learning) instinct for people to sit on losses for ever and close profits real quick

 

[ardhill]

one of the most important lessons in trading is getting people to just take a loss and walk away from the trade and move onto a better one - it seems to be a natural (but expensive in terms of money and learning) instinct for people to sit on losses for ever and close profits real quick

"You got to know when to hold them, know when to fold them
Know when to walk away, and know when to run"

Kenny Rodgers

 

[chump]

What I am saying is..drawdown is not actual loss until you close the transaction. If you close the transaction ,because the reason you are in the transaction no longer holds true then drawdown becomes actual loss..if the reason you are in the transaction holds true and you do not close then you have drawdown but not actual loss.

It is difficult to explain a quite complex issue like this ,but basically I agree with the view that every transaction should have an underlying rational driving it and it is the presence or absence of that rational that signals the conversion of drawdown to loss if that is the postion at tha time. We are touching on this over on the property thread in a sense. I'll try to explain.

Essentially i don't care what happens to the price of property. What I care about is the reason i invested in that vehicle. What could change that rational ? A radically new technical way of housebuilding that alters cost structures might...significant change to population figures (outflow) might..perhaps you now see what I mean...good thread

 

[stevet]

if you are trading dynamically with the market - you might want to consider that your rational SHOULD change if what you have bought is losing you money

up to now with property - as it is going one way - it could only continue to go one way - with interests rates at all time lows - so thats a good trade - but now interest rates are rising - property is moving to neutral - and it needs a good few more percent before property values start to erode - but once that erosion starts - the down ride is way faster than the up

stocks are way different - you dont have the same simple use of a leading indicator such as interest rates as you do with property - and if a stock turns against you - that is a wake up call that you analysis is wrong and you need to walk away and get on board one that moves into postive money

even if your analysis was right - whats the point of being the only one who is right and the only one losing money to prove it

when some dumb **** bought another stock for the wrong reasons - and is making a mint!

ps - all the same rationals about expanding populatons and buiding technoques brought out for property work for germany as well and on top they have low interest rates - and they have property repossesions coming out their ears!

 

[chump]

Germany is still paying the cost for the most expensive wall in history, and a political posture re social systems etc , (I have worked extensively in Mainland Europe in the area of labour laws so I am not ignorant re Germany and indeed some of the other EU countries etc) ,but let's not pursue property etc as it will divert what is a good thread...

When you say "trading dynamically" it is difficult to know what you mean..on the one hand one interpretation might simply be allowing yourself to be turned into weak hands if your underlying rational is still correct..on the otherhand I accept that if you have married the postion and can no longer be objective about your rational then yes thinking you are holding a strong position when all around have changed their viewpoint without you is likely to be expensive. Unfortunately I am still a relative newbie re stocks ,but I accept there are some differences between investment/trading vehicles..if there were not I would have found this issue much easier. I can't really agree that if a stock moves against you that is the signal to close and move on..I think this is too simplistic. Yes, if your timeframe is tomorrow then that may well be the best thing to do, but if your timeframe is substantially longer then such a manouvre is simply making the broker happy.

It seems to me that stop losses belong as part of a cohesive overall plan that incorporates time , risk , and expectation of return based on a rational for that expectation which is sufficiently objective that you can know when it is no longer there.

Cheers

 

[stevet]

if a stock moves against you - you really do have to take note - not saying that you should just sell at that moment - but its a wake up call that you are the only one at that moment who figures this stock is the right one to be with

and then, if there is upside to the stock - after the fall - you are only going to be getting back to zero - not making a profit - so sitting on losses is real dangerous

heres a thought - and one i can never really get over - but here goes - why do people believe that they know what is going to happen in the future, some time way off, but they cant predict what happens in the next second!

traders who make money in the markets - day in - day out - are experts at the next second - no one knows the future, but in trading you can get a reasonable feel for what will happen in the next few few seconds or minutes ahead - people who "know" what will happen in the future -tend to be gamblers

 

[chump]

I don't think it is about knowing what is going to happen in the future and I think I have posted enough to the contrary to make that clear. What you can do is make sure you know what your overall financial position is and what your appetite for risk is. Within that you formulate a plan for any investment/trade you make.

"if a stock moves against you - you really do have to take note - not saying that you should just sell at that moment - but its a wake up call that you are the only one at that moment who figures this stock is the right one to be with

and then, if there is upside to the stock - after the fall - you are only going to be getting back to zero - not making a profit - so sitting on losses is real dangerous"

I cannot agree with these statements. If price moves down then yes the flow is against you at that point in time if you are long ,but it is also against all other long participants not just you individually. I also cannot agree that any price movement down will only ever be followed by a move back to zero. Patently this is not the case. Sitting on losses is not dangerous .What is dangerous is not knowing how much 'loss' you can accomodate financially and psychologically before you incur it. Now that is dangerous ,and that will will get you giving a free ride to everybody who starts a trade with a plan.

Steve, I think you are perhaps tending to overstate in your desire to make a point. Alternatively, perhaps you trade very short timeframes and literally have to respond to price in the way you seem to be stating.
Edit...actually you have now lost me because you state.."heres a thought - and one i can never really get over - but here goes - why do people believe that they know what is going to happen in the future, some time way off, but they cant predict what happens in the next second!" but on the otherhand you have stated absolutrely that property prices will be 50% down which is a gamblers' prediction of the future of property (apologies for bringing property back but you see the contradiction here).

Cheers

 

[stevet]

chump

i think you said you are relativly knew to trading, and you may well find that in a few years you may well start to move to my way of looking at it!

but i look at trading from this point of view - that if there is no profit - there is no lunch - so sitting on losses in the hope ( albeit astute) that those losses will turn to profit - is never going to work for me - i have to make a profit - and a cash profit

and at the same time - professional traders know the dangers of long term trading - and they know why people trade long term - it removes skill and trusts in luck - i dont mean that in a negative way - but it is a fact - so lets rejoin this conversaton in a couple of years and have another bash at agreeing to disagree!

 

[chump]

Steve,
I am not at all sure that we do disagree. Rather I think we have different timeframes and this makes it difficult to analyse the common ground. In fact my more recent interest in trading will involve me in having to adapt in some ways ,because I am sure that all of the factors that have made investing long term work for me will not be fully applicable to trading in shorter timeframes ,but in making the transition I don't wish to throw out those factors which are applicable to both approaches.

Cheers

 

[stevet]

chump

ok, but perhaps its the definition of profit that we disagree on!

 

[chump]

No, I think I can be pretty sure we would agree that profit is that stuff that finds it's way to your bank (hopefully) after you close out...

 

[stevet]

yes - but i only see profit in terms of cash profit and i want it hitting that bank every day

i am not even that keen on the banks having it as it puts me one step away from it - as people in argentina found out

so having it some share or other in the hope i can sell at a profit in the future is not a goer for me

 

[stevet]

Thirteen

ok, see you are into the nitty gritty!

but like most desperate to make a buck- i go into a trade just looking for a profit - any profit -and if you are lucky enough to go into profit - you stay on board until you no longer think its right to - so that might end up as a scalp or a trade for hours

and one way to mitigate the opening acceptable range - is to open the trade at the comfortable end of that range

i get out of the trade at the point i realise i have got it wrong and/or where the profit anticipation dies

you only enter at the exact moment you figure the trade should take off - so if it doesnt - you know you have one strike against you - so one other litlle negative is going to put you off that one for the long haul

but this is how i woudl trade for even something i was going to hold for years - since i never want to be sitting on a loss, even if i planned to hold it for the rest of time - so i want that little comfort zone right from the off

 

[chump]

"but this is how I would trade for even something I was going to hold for years - since i never want to be sitting on a loss, even if i planned to hold it for the rest of time - so i want that little comfort zone right from the off"...well,there's nothing wrong with that,but you understand that it is exactly those type of investors/traders who make what I have been doing profitable..each of you in moving in and out leave the tiniest scrape of profit behind them for me...so what we are talking about here is this...you taking lot's of 'small' profits frequently...or me taking the accumulation of very tiny profits very infrequently....and I don't see that any one of these approaches is 'better'..each is only determined as 'better' if it is suited to the temperament of the person using that approach..and there is the crux

Cheers

 

[stevet]

chump

ok, so let me get this clear - you are making your bucks off what the professional traders who have been trading for years and years leave on the table

mmmmmm

as i said before -lets complete the debate in a couple of years!

 

[chump]

as i said before -lets complete the debate in a couple of years!..don't need to I have no trouble with numbers...but thank you for the offer

 

[stevet]

i am not anti using stop loss analysis for trading - just that i prefer to be the one taking what the others want to dump when their stops got hit

 

[Mr. Charts]

This is to illustrate my posts 10 and 13.
I prepared to short BRCM at around 29.63 as it presented one of my set-ups, the trigger for entering the trade then presented and I shorted at 29.61.
Had the trigger reversed there would have been no reason to stay in the trade as the trigger would have been negated. Had it even moved 2c against me initially I would have exited for a tiny loss or scratch.
However, it moved immediately into profit as all of this type of trade should and normally do and I then managed the position. Within one minute the momentum trigger went neutral and I exited 25% of my position at 29.53. Had the momentum reversed and gone against me I would have exited the rest of the position immediately and without hesitation. It didn't and resumed its down move. It briefly touched 29.38 and started to rise so I exited the remaining 75% at 29.43 for 18c, an average profit for this "scalp" of 15.5c
Now had I sat and waited, giving it "wiggle" space and ran an initial stop of say, 15c and/or a trailing stop of 15c, it would have been either a losing trade or shown only a very tiny profit.
The above illustrates how I use my stop policy to enable me to generate and maximise consistent profits and minimise or prevent losses.
This is an example of the method in action - and it works.
Hopefully someone will find this useful.
Richard

 

[ardhill]

The above illustrates how I use my stop policy to enable me to generate and maximise consistent profits and minimise or prevent losses.
This is an example of the method in action - and it works.
Hopefully someone will find this useful.

Thanks for the insight.