KIWI;
Stridsmann does a few studies of adding stop losses to systems. In all cases they reduce the overall profitability of the systems (we all know how often price comes back just after hitting the stop). His arguements for them are two fold:
Kiwi, although the discussion has now moved on somewhat, you were absolutely correct in this point.
Now the relevant question to ask is;
Mechanical systems that run a no "STOPLOSS" methodology, are they "TECHNICAL" or QUANTITATIVE" systems.
Nick Radge, who I know a little, and who is the Head of Systems Trading for Maquarie Bank in Australia, runs a number of mechanical systems, at least 1 of them the Quant. runs with no stops, this is far and away the most profitable.
FRUGI;
I am dispossessed of any accountancy skills so am unable to distinguish between a cost of doing business and a cost on profit margins; at least, in this discussion, I view them as much the same since in either case the profit is kept separate. The cost of doing business will transfer a cost onto the profit margin, as it were, so why the need to distinguish between them? Of course there may be a real difference on ledgered paper but the important point is to ensure that the total stop losses taken only form a small percentahge of the total profits.
A subtle difference and not worth really pursuing further than;
If you had a supermarket with $10M Capital investment ( a large enterprise )
Could you run it singlehanded?
If the answer is no, then employees are a cost of doing business.
If you had $10M trading Capital;
Could you run this money singlehanded?
If the answer is yes,
Then a stoploss is not a cost of doing business.
A stoploss is utilised to ......STOP LOSSES..
In the final analysis a stoploss is VITAL to a trader because the METHODOLOGY viz. Technical Analysis, has POOR TRADE SELECTION.
Because of this sad fact a stoploss becomes very important to protect the trader from poor trade selection.
If you had excellent trade selection, then the requirement for a stoploss is redundant.
I use no stops.
( famous last words ).....I have not lost 1 PENNY in 18mths. I HAVE had periods of drawdown, and 1 of my live posted trades went into drawdown for about 2 weeks or so, but, the fact remains, no losses.
As a technical trader, I took hundreds of small losses through the years, due to the necessity of doing so, as a direct consequence of poor trade selection due to the inherent worthlessness of TA.
That is not to say you cannot make money from TA, you can, I did, others do. However it is difficult not because the theory of TA is difficult, far from it, it is easy, what is difficult is the OVERCOMING OF THE FAILURE RATE OF TRADE SELECTION as selected by TA.
TRADER333;
All the traders I know who didnt use stoplosses are now Ex traders with insufficient funds to be able to trade with. Personally I would rather use stoplosses and be able to trade another day.
Sure, poor trade selection without stops will kill you.
BARJON;
Despite these results, he says, it is difficult to trade without a clear idea of risk.
Now we get to the crux of the issue.
Stoplosses do not assess risk, they do not measure risk, they only save you from inappropriate risk.
Risk and it's assessment should be the starting point. But it never is, hence poor trade selection and the necessity for stops.
GLENN;
When you enter a trade, anything can happen no matter what you may think, or why.
Agreed, the future is unknown, and unknowable.
Once you have placed your trade, you are entirely at the mercy of all the other traders of that instrument as to its direction thereafter.
Absolutely not. Hence your incomplete understanding of risk, and risk management.
ROGUE;
Hi barjon, this concept of no stoploss of any kind appears to hinge on the principle that a corectly analysed and selected trade will most times exhibit a profit at some point in its life, if you hold it for long enough, however what the model would fail to show if this were the case is what use the capital tied up in the trade could have been put to in the meantime.
You have got it.
Time, and timeframes as previously mentioned is a different topic, but hugely relevant. No point placing a trade that takes 3yrs to show a profit.
PRATBH;
Dukati is a fundamental trader, so I understand where he is coming from. If I was a fundamental (therefore long term) trader I wouldn't worry about stop losses. I would buy a stock using a modest fraction of my capital, would not use any margin and hold the stock as long as necessary, until the fundamentals changed. If I used just 5% of my capital, I wouldn't really worry much about possibility of the stock crashing to zero. My risk is just 5%, whatever happens.
An alternate form of risk management. Spot on.
Now, combined with trade selection you have a trading methodology that requires no stops.
cheers d998
