Stop Losses

[chump]

and I presume having posted I won't keep getting that nagging message that I have not posted awhile every time I log in !

 

[Splitlink]

Having the nerve to hold on to a losing position might have more to do with the unwillingness (ego?) of the trader to give in to the market and admit he's wrong. If he knows what to do on what signal, there should be no "having the nerves"-thing involved.

But we've been through this before, as you rightly say, in the Three Keys thread...

We've been throught it before, as you say, but his argument keeps nagging away at me.

It is true, isn't it, that buyers do come into the market when stops are triggered?

How many traders know enough to think out exit strategies, themselves, and, instead,
follow a textbook strategy that puts thousands of them together like a load of sheep for the slaughter- the 95%, in fact.

Anyway, all this is food for thought for those who are reading it.

Regards, Split

 

[fifty2aces]

No wonder the MMs and SBCs are filthy rich! SBCs don't need to fiddle to get the traders money. It is, practically, given to them by the traders, themselves.

So the budding trader (and not so budding) has, probably got himself a nice system that should work, then puts his stop where informed TA opinion tells him to!

No system "should" work - either it works or it doesn't. If you know that price will drop 10 ticks from where you enter long, you shouldn't enter long there - wait till it drops 10 ticks.

At the end of the day, it doesn't matter if "stop hunting" is causing price movements, if you notice a repeated pattern of behaviour in the market, you can trade it.

 

[Splitlink]

No system "should" work - either it works or it doesn't. If you know that price will drop 10 ticks from where you enter long, you shouldn't enter long there - wait till it drops 10 ticks.

You don't know that, though, do you? What you should be doing is what I said before, at least it's a possibility, i.e. buy in where you think the stops are.

At the end of the day, it doesn't matter if "stop hunting" is causing price movements, if you notice a repeated pattern of behaviour in the market, you can trade it.

I disagree that you can trade it without taking into consideration where you think stop hunting will take place, otherwise you are facing a loss on that trade almost before you have started, if you place a stop where everyone else's is.

 

[black bear]

A human will X the river at the same place most days

A rabbit will hesitate just before he enters his warren , even when scared (80% of the time)

thats where you make the easy kill IMO

yes I used to hunt to

 

[BSD]

Split, you're totally right of course, certain areas will act as targets for stop hunting provided they aren't too far away, but, I'm honestly not that bothered by that, but then I'm not overly bothered by hit rates of below 50% either.

I just don't think there is a perfect place to put stops as that would mean they wouldn't get hit which in reality of course they do.

So, realizing that perfect stops don't exist, realistically I'll simply use a mixture of putting them some place away from support / resistance even though I realize it's an obvious target, but hey, first off, it's far less of an issue than it sounds like, if you do it half way in accordance with good price principles, eg a double top IS a double top if it works, OR, if it doesn't, if it turns into a triple top, you can still always re-enter, can't you, and if it just fails totally, no big deal either, you've exited a proven losing trade in good time, so I don't see a big problem with that in any case.

Or, depending on the trade, I'lll put my stops some place greater than the current ATR away, eg if current ATR is 10 points, I'll put my stop 11 or 12 points away.

But, and that is the thing, neither any of that, nor anything else, will prevent me getting stopped out. I still get stopped out, but it just doesn't matter.

If worst comes to worst, you will still make more money than anyone else you know by being wrong 70% of the time, provided your winners are on average three times the size of your losers.

25 total trades, a few days = none, one day I think 4

21 wins
4 lose
SR 84/16%

av win 8.23 pts
av lose 7.50 pts

Coms paid on trades put the av win 1.5 pt behind av win but achieved usual high strike rate so very happy with 1st month.

Andy, there are definitely two extremely viable ways to make money trading:

One is my low hit rate,-cut-your-losers-let-your-winners-run-type of trading.

The other one is stuff that you or Market Wizard Marty Schwartz do, which is going after high-hit-rates.

It all depends on what you want and need, that is all that counts.

But both are most definitely ways to make money.

But per your numbers that are definitely great and show you are totally on the right track, although still not quite net profitable, so what I'd do is either increase your hit rate even more - and the best way to do that is let your losses become bigger than your winners, that would be exactly how Marty Schwartz was net profitable with his hit rate of 70 or 80% -, OR, keep your losses the way they are, BUT let your winners grow more.

But there is absolutely nothing wrong with a high hit rate strategy, you can definitely earn huge amounts of money there like Marty Schwartz.

The only downside I can see, and in most cases that should not be an issue at all as this is moaning on a potentially very irrelevant level, is that over time you can't keep compounding with high hit rate strategies, it won't be as scalable due to eventual liquidity limitations, which is why Marty Schwartz earned millions, but his ambition to earn billions with a hedge fund didn't work out.

But, and that's the point, earning extremely regular millions per year like he did to the tune of on average a cool mill per month is more than enough for no matter what plans you have in life already isn't it.

:clover:

 

[firewalker99]

It is true, isn't it, that buyers do come into the market when stops are triggered?

Buyers (same can be said for sellers) come into the market all the time, and people place stops all over the place. So inevitably, buyers will come into the market when stops are triggered. I don't see anything extraordinary about that...

 

[firewalker99]

...is that over time you can't keep compounding with high hit rate strategies, it won't be as scalable due to eventual liquidity limitations, which is why Marty Schwartz earned millions, but his ambition to earn billions with a hedge fund didn't work out.

There are obviously liquidity limitations when you are talking about those kind of scales, but whether that has something to do with a high or low win ratio? I fail to see any connection there... only thing that matters is the net expectancy. But we might be floating off topic here.

 

[Splitlink]

Buyers (same can be said for sellers) come into the market all the time, and people place stops all over the place. So inevitably, buyers will come into the market when stops are triggered. I don't see anything extraordinary about that...

There's nothing extraordinary about it. It's just that it's better not to be with them because most of them are all together.

Anyway, I'm off to work. Take care

Split

 

[BSD]

Andy, of course, one third thing you can do:

Cut your current commissions that are eating up too much of your profits by eg joining one of these Trading Arcades or just finding a much better deal elsewhere, there are I believe lots of great deals available commission wise for people who trade a lot that would make IB appear positively expensive.

That way you WOULD already be net profitable.

 

[BSD]

There are obviously liquidity limitations when you are talking about those kind of scales, but whether that has something to do with a high or low win ratio? I fail to see any connection there... only thing that matters is the net expectancy. But we might be floating off topic here.

Ah, just caught this.

That's going along the lines that most high win rate strategies just go after a handful of pips / points per trade, so you can do that with anything up to millions probably, but once you've compounded your stake up to, oh, I don't know, a hundred million or a billion, you'd be moving the market too much too keep high hit rate viable as a strategy, I should imagine that the more size you move, the bigger your average profits will probably need to be, you can be high hit rate / small average profits, or low hit rate / large average profits, and while I wish I had, I've just never heard of a communion between the best of those two worlds. ;-)

 

[firewalker99]

Ah, just caught this.

That's going along the lines that most high win rate strategies just go after a handful of pips / points per trade, so you can do that with anything up to millions probably, but once you've compounded your stake up to, oh, I don't know, a hundred million or a billion, you'd be moving the market too much too keep high hit rate viable as a strategy, I should imagine that the more size you move, the bigger your average profits will probably need to be.

I agree with what you're saying, but whether you scalp (assume very high win ratio) for a handful of points or leave a trade open for double digit profits (assume lower win ratio) is beside the point. Once your equity grows to a certain point, the problem arises. However it is one problem I look forward to having

 

[black bear]

Andy, of course, one third thing you can do:

Cut your current commissions that are eating up too much of your profits by eg joining one of these Trading Arcades or just finding a much better deal elsewhere, there are I believe lots of great deals available commission wise for people who trade a lot that would make IB appear positively expensive.

That way you WOULD already be net profitable.

net profitable =

do you mean

arr I am a painter

I am making money, what do you mean BSD :?: is it accountant speak me daft nor comprenda :?:

are you refering to drop in SR or do you mean 10 win 10 lose over the long period in pts clear of com deductions

I made 10% last month and left 4.83% to grow bank after deductions

this month one week errrrrrrrrrrr I ant going to say, its better and the hit rates gone up :clap: but it could be a spike :whistling I guess

 

[BSD]

IHowever it is one problem I look forward to having

Yes indeed

 

[BSD]

net profitable =

do you mean

I am making money, what do you mean BSD :?: is it accountant speak me daft nor comprenda :?:

I made 10% last month

Andy, I may very well being daft today, got lotsa crap floating around in my head today,

thought you said this here earlier:

"Andy:

21 wins
4 lose
SR 84/16%

av win 8.23 pts
av lose 7.50 pts

Coms paid on trades put the av win 1.5 pt behind av win but achieved usual high strike rate so very happy with 1st month."

My apolgies if I thought that was the whole picture.

If that was just a part of the month, but you are up net 10% for the whole month, you really have absolutely nothing left to worry about.

Keep that up, and hey, sky will be the limit.

Congratulations btw, that is really excellent !!!

You'll have people come running up asking you to manage their money

 

[black bear]

Good weekend

Andy, I may very well being daft today, got lotsa crap floating around in my head today,

thought you said this here earlier:

"Andy:

21 wins
4 lose
SR 84/16%

av win 8.23 pts
av lose 7.50 pts

Coms paid on trades put the av win 1.5 pt behind av win but achieved usual high strike rate so very happy with 1st month."

My apolgies if I thought that was the whole picture.

If that was just a part of the month, but you are up net 10% for the whole month, you really have absolutely nothing left to worry about.

Keep that up, and hey, sky will be the limit.

Congratulations btw, that is really excellent !!!

You'll have people come running up asking you to manage their money

Hi BSD

thanks, you had me checking again dont bother answering pm, I was just being clever I thought knocking of Com, probably knocked it off wrong anyway
have a good weekend,

Nice pairs trade by the way, I would have worried myself away if I had been in that long

good entry after the pinbar had been tested a bit I notice easy kill IMO if thats your time frame, wishing you many more BSD :clover:

 

[BSD]

Hey, you take good care too Andy

Have a nice weekend and great trading next week

 

[dbphoenix]

"Cutting losses short" has little or nothing to do with stops. It has to do with (a) knowing when you're wrong and (b) acting on that knowledge. The losing trader doesn't know how to determine when he's wrong or, if somehow he does, is too emotional to act.

 

[BSD]

"Cutting losses short" has little or nothing to do with stops. It has to do with (a) knowing when you're wrong and (b) acting on that knowledge.

Er, huh ?

The way I know that I am wrong is when I let my stop loss, that I enter the second I enter my trade, cut my losses short .

;-)

 

[dbphoenix]

Er, huh ?

The way I know that I am wrong is when I let my stop loss, that I enter the second I enter my trade, cut my losses short .

;-)

As I said earlier, except for the catastrophe stop, used in the event of a power disruption or the loss of the connection to the broker or a sudden, temporarily incapacitating mini-stroke, stops are nothing more than training wheels, used by those who aren't yet confident in what they're doing. These individuals place the trade, set the stop, then sit back hopeful (or fearful, as the case may be) and hand over all responsibility for the trade to the stop. If and when they are stopped out, they state (or wail) that they were "stopped out", as though they themselves had nothing to do with the outcome of events.

Stops are essential to those who are not yet able to trade unemotionally, which, from what I read, is just about everybody. But those who can continue whatever assessment of conditions that they began before placing the trade throughout and after the entry will find little use for stops. If the trade is wrong, for whatever reason, they're out, and they continue their assessment of trading conditions without interruption, looking for the next opportunity.