Hey, Techies......Reality Check

[roguetrader]

The obvious difference would be that I do not place a stop, that said, there will come a time that I would have to say enough is enough and that is the reason for the 25 losing trades.

Interesting Lion, as that would probably fit the description of a discretionary stop, would you not say?

 

[charliechan]

this is all very pointless in my opinion.

success depends on the individual, not the methods employed. i can guarantee that if a 'winning' method was published that was 'guaranteed' to succeed in TOMORROWS market, only 10% of traders would still be able to make money from it - regardless of whether it was ta or fa based.

all this thread confirms to me is that a certain person still needs to read a book on basic stats.

sorry to be a party pooper (again)

 

[LION63]

Interesting Lion, as that would probably fit the description of a discretionary stop, would you not say?

I cannot argue with that.

If I buy shares in XYZ Plc based on fundamentals at 550p without a stop and the shares oscillate between 570 -580p for a week or so, I will not be ecstatic but I will be mildly satisfied. I wake up one morning and find that the company has had a profit warning and the shares have dropped to 490p. Now I have a problem because I am nursing substantial losses and the company's situation has changed fundamentally (Profit warnings have a nasty habit of coming in pairs).

Quite frankly, I do not have a choice, I must cut the position and accept that I got it wrong unless it was an asset play.

 

[roguetrader]

I cannot argue with that.

If I buy shares in XYZ Plc based on fundamentals at 550p without a stop and the shares oscillate between 570 -580p for a week or so, I will not be ecstatic but I will be mildly satisfied. I wake up one morning and find that the company has had a profit warning and the shares have dropped to 490p. Now I have a problem because I am nursing substantial losses and the company's situation has changed fundamentally (Profit warnings have a nasty habit of coming in pairs).

Quite frankly, I do not have a choice, I must cut the position and accept that I got it wrong unless it was an asset play.

Indeed, though the impression propogated of late with regards to Fundamental trading is that it is a "Stop-free" zone. Stops I was led to believe were merely flaws solely employed in the technical game.

 

[LION63]

Indeed, though the impression propogated of late with regards to Fundamental trading is that it is a "Stop-free" zone. Stops I was led to believe were merely flaws solely employed in the technical game.

I believe that those are mechanical stops that are predetermined at the outset. I doubt if any fundamental trader could justifiably argue that once the fundamentals that led to the opening of a trade have changed that one should maintain the position come rain or shine. That would be suicidal and the position is then being maintained on hope and the lack of willpower to face the truth.

An individual sells the DOW at 10650 because he feels that the US economy is about to tank and current valuations do not support such levels. The FED then cut interest rates to 0.5% and the Treasury announce that they are suspending personal taxes for six months. As a result the DOW rises to 11,000 prior to the market opening; does he cut and run or does he stand his ground and insist that his position is the right one?

I dare any fundamental trader to come forward and say that the position should be maintained under such circumstances.

 

[roguetrader]

I doubt if any fundamental trader could justifiably argue that once the fundamentals that led to the opening of a trade have changed that one should maintain the position come rain or shine. That would be suicidal and the position is then being maintained on hope and the lack of willpower to face the truth.

Well now there's a thing, some notable quotes from a recent thread.............

The bottom line, get it wrong sufficiently frequently and the end result is death. Use of stoplosses in some form or another may bring that about sooner, but the end result will be the same.


No, use an APPROPRIATE tool to manage your risk.

If you had a true quantifiable, statistically sound methodology,
With a statistically sound risk management methodology,
Then the methodology would not require a stoploss.

I have the balls to go with a no stoploss based on my analysis.

If you evaluate "market risk", quantify it, and effectively manage it, then no stop is required.

Now can you in good conscience demonstrate to me where this Fundamental trader defines a difference between "mechanical" stops, and any other stops throughout the protestations that NO stops should be used? In one case he was thrown a lifeline, "stops in some form or another" but was adamant NO STOPS
One of the problems in taking such an adverse and controversial stance to something is that you then cannot be seen to use it in any shape or form, this results in all the fancy footwork and greying of the area. "Well no, thats not really a stopless, because it wasn't mechanical." or "No it's not a stoploss, cause I had my fingers crossed behind my back and that makes it not a stoploss."

By any other name.

For continuity and context purposes these quotes were thaken from the thread.
'Stoploss.......Theory of Failure.'
http://www.trade2win.com/boards/showthread.php?t=15642&page=1&pp=40&highlight=stop+loss+theory

 

[LION63]

RogueTrader,

I remember all the quotes that you have pasted. I am sure that the author will agree that once the fundamentals change, the trade is no longer viable and the position has to be cut, getting out the prayer beads is not an answer.

I am an avowed fundamental trader and I have stated what I will do when the parameters change, I cannot speak for others but I could not justify crossing my arms and watching my capital dwindle through inertia.

 

[roguetrader]

I would agree totally with what you are saying Lion, and I would say that the point it illustrates is that there is validity in a great many methods, and one should be careful not to "throw the baby out with the bath water"
Once you have set yyourself up in total opposition to a methodology it becomes necessary to try and distance yourself from as much of that methodology as possible. That particular thread reads to me that proper fundamental trading is such a sound methodology that it requires no such inferior tools such as stops.
I will have to re-read this thread to see if that theme has cropped up here. It was one of the differences I had allowed for with your trade of British Airways, that because of your belief of fundamentals you would simply remain in the trade if it did not go your way. In essence however you acceptance of stopping out as I would means that although you may be attracted to a trade for fundamental reasons, and those reasons may justify your trade, you are simply trading technical movement, If this were not the case, you would not get repeated trades from it, as when the market realised the stock was overvalued it would move down and that would be it.
So now we find that the line between fundamental trading and technical trading can overlap.

 

[chump]

I was the one throwing the lifeline..because I understood even though he did not make it clear that he was in fact using a stop loss..he just did not define it has such ,because i think he get's it mixed up to some extent with the 'usual' mechanical form of stop loss he has read about or used as a TA trader....this really is an awful subject to discuss in this medium....definition of terminology ..and thus clarity of meaning trip you up so often .......I reiterate what I said much earlier , there is stop loss if we define stop loss as any means at all of cutting losses...you can do it on the basis of a change to the fundies ...a change to your TA if you are a TA trader....you can actually do it with no stop loss at all if you are a very well capitalised trader with the correct capital allocation in your portfolio ...I'll explain the latter if anyone's unclear on exactly what I am meaning with that 'controvertial' statement....

 

[LION63]

I would say that the point it illustrates is that there is validity in a great many methods, and one should be careful not to "throw the baby out with the bath water" .

So now we find that the line between fundamental trading and technical trading can overlap.

Totally agree with the first point and I have consistently stressed that it is not the method that makes traders lose money but the trader's grasp of it.

The second point would just about sum it up. Example - A fundamental trader may not look at charts but would be aware of the highs and lows.