Mental stops or not ?

[Chicken Curry]

I would like to see some debate or comments about members' experiences with stop losses, especially with regard to the relative merits or otherwise of mental stops versus formal stop loss orders.

I would prefer to use mental stops at all times but my experience has shown me that I cannot always be relied upon to pull the trigger at the precise moment that my mental stop level is hit. My discipline is not good enough to get me out reliably at all times. Sometimes I will do it and others not - in fact the failure to exhibit rigid discipline at all times is my biggest single issue in trading.

I therefore have to resort to placing a formal stop loss order in the market with the result that my intentions are then visible. Usually I would place both a formal stop loss order and a limit order for my target profit, on an OCA basis. This then allows me to go away for short periods to make a cup of tea, to answer the doorbell, watch the cricket etc.

What are the experiences of other people and what are the relative advantages and disadvantages of the different methods of applying a stop loss ?

How to solve discipline issues regarding mental stops, other ways of limiting your loss etc etc.....all issues would be interesting to discuss.

 

[rols]

I would like to see some debate or comments about members' experiences with stop losses, especially with regard to the relative merits or otherwise of mental stops versus formal stop loss orders.

I would prefer to use mental stops at all times but my experience has shown me that I cannot always be relied upon to pull the trigger at the precise moment that my mental stop level is hit. My discipline is not good enough to get me out reliably at all times. Sometimes I will do it and others not - in fact the failure to exhibit rigid discipline at all times is my biggest single issue in trading.

I therefore have to resort to placing a formal stop loss order in the market with the result that my intentions are then visible. Usually I would place both a formal stop loss order and a limit order for my target profit, on an OCA basis. This then allows me to go away for short periods to make a cup of tea, to answer the doorbell, watch the cricket etc.

What are the experiences of other people and what are the relative advantages and disadvantages of the different methods of applying a stop loss ?

How to solve discipline issues regarding mental stops, other ways of limiting your loss etc etc.....all issues would be interesting to discuss.

To use mental stops IMO is mental unless one is a psychopath. In longer term trades where I draw spaghetti on charts then I always have a stop and stick to it - this is a hard earned lesson from the bitter pill of tampering.
Being human our emotional dynamics vary from day to day and for this reason I would have no hard or fast rules about stops in short term daytrading. Some days I'm quite happy to rollercoaster around other days I hit the breakeven stop button. It all depends on how my perception of the market interfaces with my current emotional state. Of course a worse case stop should always be entered just in case of Bin laden captured etc. but if you are a disciplined trader and have a good strategy(s) then you wouldn't be in the trade if you didn't have at least a 70% positive expectancy.
Regards limiting losses, reducing position size, tightening stops and resisting over trading helps too. But I'm sure you already know that. Anyway **** happens and we can't be perfect all of the time. :cheesy:
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'Life's a bitch. And then you die.' Woody Allen
'Weaseling out of things is important to learn. It’s what separates us from the animals … except the weasel' Homer Simpson

 

[bracke]

There is no debate. If you use mental stops you need a will of iron to keep them. If you do not have such a will do not use them.

Regards

bracke

 

[TheBramble]

I use mental stops and limits and stick to them rigidly - (see bone-shaking 2 pips shy of target on Cable thread today). Unless I'm not able to monitor my position in real time. Then I'll set a mechanical stop/limit.

More than half the battle in setting stops - mental or mechanical - is setting sensible ones. If you set them tight, expect to be taken out more frequently. Set them with more slack, you'll hit less stops but they will cost you more when you do. It's an exercise in basic arithmetic driven by your personal risk profile and assessment of each trade.

The only times I have ever set mental stops and have overridden them was in my early days of trading. And this was more a symptom of incorrect planning and assessment than of execution.

 

[Chicken Curry]

There is no debate. If you use mental stops you need a will of iron to keep them. If you do not have such a will do not use them.

Very sound philsophy indeed, thanks.

 

[rols]

I use mental stops and limits and stick to them rigidly - (see bone-shaking 2 pips shy of target on Cable thread today). Unless I'm not able to monitor my position in real time. Then I'll set a mechanical stop/limit.

More than half the battle in setting stops - mental or mechanical - is setting sensible ones. If you set them tight, expect to be taken out more frequently. Set them with more slack, you'll hit less stops but they will cost you more when you do. It's an exercise in basic arithmetic driven by your personal risk profile and assessment of each trade.

The only times I have ever set mental stops and have overridden them was in my early days of trading. And this was more a symptom of incorrect planning and assessment than of execution.

A somewhat Grey tinge has crept in here and is muddying the waters for us lesser mortals. We know there's more to this than 'basic arithmetic' so c'mon spill the beans oh omnipotent one!

 

[TheBramble]

A somewhat Grey tinge has crept in here and is muddying the waters for us lesser mortals. We know there's more to this than 'basic arithmetic' so c'mon spill the beans oh omnipotent one!

No there isn't any more to it. I took a trade (two if you want to be pedantic) on Cable earlier on. After establishing the possibilities for trading, my risk was the very next thing I looked at, before working the target.

I looked at where I would get in, if I went in, and where I would set my initial stop if things went 'cloudy'.

I then worked my risk as absolute $/lot into my max risk formula and came out with a number of lots max to risk. When the trade entry presented itself, I went in with half. When I got confirmation that I was into a good trade and the secondary level broke, I went in with the other half of my risk. But because the second tranche carried a greater absolute stop amount I sold proportionately fewer lots short. Absolute risk on both tranches was identical.

If anyone wants the sorry detail, I'll be happy to oblige.

 

[rols]

No there isn't any more to it. I took a trade (two if you want to be pedantic) on Cable earlier on. After establishing the possibilities for trading, my risk was the very next thing I looked at, before working the target.

I looked at where I would get in, if I went in, and where I would set my initial stop if things went 'cloudy'.

I then worked my risk as absolute $/lot into my max risk formula and came out with a number of lots max to risk. When the trade entry presented itself, I went in with half. When I got confirmation that I was into a good trade and the secondary level broke, I went in with the other half of my risk. But because the second tranche carried a greater absolute stop amount I sold proportionately fewer lots short. Absolute risk on both tranches was identical.

If anyone wants the sorry detail, I'll be happy to oblige.

Ta for that. Now please post the chart on the new thread....
http://www.trade2win.com/boards/showthread.php?p=256012#post256012

 

[TheBramble]

Ta for that. Now please post the chart on the new thread....
http://www.trade2win.com/boards/showthread.php?p=256012#post256012

No. It's got nothing to do with charts and anyway, I went blind looking at that one earlier.

 

[rols]

No. It's got nothing to do with charts and anyway, I went blind looking at that one earlier.

Entropy. That's what it's all about...

 

[TheBramble]

Entropy. That's what it's all about...

And anyway, sloppy work Gertrude. Increasing or Decreasing Entropy?

Bods generally tend to think increasing (i.e. tending to greater chaos/randomness), but it needs a flavour or ambiguity will strike your ass.

When I looked at your interpretation of E. Munch's most famous work in Chart style, I could see immediately...it is all converging to a single, simple line where price, time and volume become mere accessories.

 

[rols]

And anyway, sloppy work Gertrude. Increasing or Decreasing Entropy?

Bods generally tend to think increasing (i.e. tending to greater chaos/randomness), but it needs a flavour or ambiguity will strike your ass.

When I looked at your interpretation of E. Munch's most famous work in Chart style, I could see immediately...it is all converging to a single, simple line where price, time and volume become mere accessories.

Yes. Precisely!

 

[rog1111]

CC

If you are using formal bracket orders, stay with it ! My only concern is the visibility of your stop and limit orders, and personally for my own peace of mind I prefer to use an API to execute market orders once stop/limit are reached. Either way, far better and easier than mental stops IMO. Some here might say that you should have adequate discipline to use mental stops, but I prefer the relaxed approach of walking away once the trade is on, although I do have an additional warning signal should internet connectivity to the broker be lost.

Right track

GL

rog1111

I would like to see some debate or comments about members' experiences with stop losses, especially with regard to the relative merits or otherwise of mental stops versus formal stop loss orders.

I would prefer to use mental stops at all times but my experience has shown me that I cannot always be relied upon to pull the trigger at the precise moment that my mental stop level is hit. My discipline is not good enough to get me out reliably at all times. Sometimes I will do it and others not - in fact the failure to exhibit rigid discipline at all times is my biggest single issue in trading.

I therefore have to resort to placing a formal stop loss order in the market with the result that my intentions are then visible. Usually I would place both a formal stop loss order and a limit order for my target profit, on an OCA basis. This then allows me to go away for short periods to make a cup of tea, to answer the doorbell, watch the cricket etc.

What are the experiences of other people and what are the relative advantages and disadvantages of the different methods of applying a stop loss ?

How to solve discipline issues regarding mental stops, other ways of limiting your loss etc etc.....all issues would be interesting to discuss.