should the stop be greater than the limit ?

Shakone said:
Ok, so say you've entered a trade, stop 25, target 50. Price moves 25 in your favour, your position is now such that you have a stop 50, target 25. If you never have a stop larger than the target, then you must either have already taken the profit, or you move the stop up so that your risk is less than your profit. This leads to complications though, since just trailing stops up in a fixed way like that will reduce your profits.

.
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Don't you mean reduce your losses ?
 
Pat494 said:
Don't you mean reduce your losses ?
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maybe he means that you will always be coming out your stop distance below(above) where price has reached and thus "reducing" the potential profit.
 
barjon said:
It's a trite phrase, BJ. Run 'til when?
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Well, you can run it more than you allow it to run now. It would be a looser to take the only advantage the markets give you over casinos and cut it short. As for the specifics of how to do it, that would be holy grail territory.
 
Pat494 said:
Don't you mean reduce your losses ?
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I wasn't clear, sorry for that.

Take a system for entry, fixed stop and target. Look at the results. Take the same entry, fixed target and trailing stop i.e. it moves up 5 so my stop moves up 5, not talking about some discretionary trailing stop, and see how your results are affected.

I can't speak for every entry, every system, I can't because I haven't tested even a minute fraction of all possibilities. However, in my limited experience, this kind of fixed trailing stop reduces the end profits. Don't believe me, test it for yourself. Sure on an individual trade, it will reduce the possible loss, but at the same time it increases the probability of it being a loss. So the end result is that your overall porfits are reduced. Which is what I meant, but poorly explained.
 
Shakone said:
this kind of fixed trailing stop reduces the end profits. Don't believe me, test it for yourself. Sure on an individual trade, it will reduce the possible loss, but at the same time it increases the probability of it being a loss. So the end result is that your overall porfits are reduced. Which is what I meant, but poorly explained.
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Agree that simple auto trailed stops don't help much, but as with everything, it depends on the market.
 
Shakone said:
I wasn't clear, sorry for that.

Take a system for entry, fixed stop and target. Look at the results. Take the same entry, fixed target and trailing stop i.e. it moves up 5 so my stop moves up 5, not talking about some discretionary trailing stop, and see how your results are affected.

I can't speak for every entry, every system, I can't because I haven't tested even a minute fraction of all possibilities. However, in my limited experience, this kind of fixed trailing stop reduces the end profits. Don't believe me, test it for yourself. Sure on an individual trade, it will reduce the possible loss, but at the same time it increases the probability of it being a loss. So the end result is that your overall profits are reduced. Which is what I meant, but poorly explained.
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Agree on not using fixed targets with trailing stops.
Trailing stops alone are far from perfect also, but can work, although not optimal.
Trailing stops and dynamic/time targets tend to work best, as far as trailing stops go at least.
The only fixed target I've come across that works with a
trailing stop is exit on close / session end (or rather flatten 20 mins before rollover).

Variations of trailing stops may have more merit, such as breakeven triggers,
step frequency and stop evolving with open PnL.
That way you can partially offset one of the biggest disadvantages of a
trailing stop - giving too much back, and allowing a profit to turn into a loss.
 
As expected, despite liquid validity's wonderful post, there is no answer forthcoming from the dilemma I posed. Nobody is willing to discuss the issue of trade management, and how stops and targets are managed.
 
Shakone said:
As expected, despite liquid validity's wonderful post, there is no answer forthcoming from the dilemma I posed. Nobody is willing to discuss the issue of trade management, and how stops and targets are managed.
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How about this then? Based on an analysis of my past trading data: for a particular entry set up, with a particular market and stocks with a known behaviour, I use 1% fixed stop, 4% limit (exit) which gives me a regular expectancy of 0.6. Not really bothered with R/R (although it is always at least 1:1) since I know that the probability of a profitable trade is sufficient. Very profitable and works like clockwork (Black Swans excepted). Different situations I use different parameters.

I'm a great believer in past analysis (which is not the same as backtesting) while always being alert to changes in (a particular) market behaviour which can negate the profitability of a previously succesful methodology. This is one way to explore the stops/limit relationship.
 
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Shakone said:
As expected, despite liquid validity's wonderful post, there is no answer forthcoming from the dilemma I posed. Nobody is willing to discuss the issue of trade management, and how stops and targets are managed.
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I tend to look at typical "volatility boundaries" as a function of time. I generally know the statistical limits over which particular set ups tend to behave.

That's one of the primary reasons I use time based exits, I order to get a handle on this sh1t.

Stops are the easier of the two issues to manage. My best years tend to be those in which I proactively override systems on strong trend days, but that's just experience rather than any sort of systematic approach.
 
To summarise, isn't this just down to using profit targets on rangebound days and then letting them run with a sensible trailing mechanism on trending days?

I too use 'volatility boundaries' and calculate where price hits 1,2 &3 SD from the previous day's settlement prices. Often range extremes loosely obey these calcs.

I then look at where ES is when US equity markets open to guide whether I should initially bias the day as rangebound or trending.

Some examples:

Open-Drive, Open-Test-Drive and Open-Rejection-Reverse days are generally accompanied with price opening v.close to the range extreme and the first 3mins generally sets the tone for the day on whether it's moving to create a new value area or not. This would be trailed if trending and closed when US equity session closes.

Small to moderate moves outside of the previous days range (with a start in range) are generally accompanied by some momentum into the test of a range extreme and you can see them run out of steam slowly, presenting a nice trade back into range which I would probably trail rather than use a target because they are indicative of a contra-trend move.

Sometimes a test of an extreme (again from within range) highlights a drop in the orderflow (indicating nobody wanted to trade at that price) providing the opportunity for a low risk entry and a set target at the other end of the range extreme. I generally do an all or nothing on these and then leave them to run.

Horses for courses really - I don't think you can manage trades in a single way without compromise. Using different approaches seems to work for me.
 
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Shakone said:
As expected, despite liquid validity's wonderful post, there is no answer forthcoming from the dilemma I posed. Nobody is willing to discuss the issue of trade management, and how stops and targets are managed.
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Ill have a go!

Again as I’ve been told by others "you don’t need to know the nuts and bolts" of price movement/market dynamics etc, it may not be of interest.

Here goes;

To maximise a trade you must have an understanding of how price will develop/move from the point you enter. So timing is crucial IMHO to trading. One must have an emergency stop, just in case the timing is off, but once the trade moves away, you should never lose the initial stop amount.

Without a blueprint in your mind of how price should move (taking news events into play, ie stay out) you will always be a prisoner to statistical results. If you do possess the ability (gained through experience, education, talent etc) then you can see the points at which price does not conform to your blueprint. This means you can take 15 pips on the EURO, whilst those about you will let the price move back to their stop and get nothing from it. This is the major difference between the traders who seem to be able to take pips/points daily from the market, regardless of conditions, whereas the majority struggle.

You cannot afford to be responsive in this business, you need to develop ways to see the warning signs before the majority do. When you can do this, you open up a world of possibilities to the trading opportunities available to you.

For example;

Out of every 10 trades, a good figure to aim for would be on the lines of say 2 hitting full stops, 3 hitting tiny/BE, 3 hitting 1 to 1 of initial risk and the other 2 hitting 2 to 1 of initial risk. From this point you will be able to work on your ability as experience develops, but at the same time racking up some pips/points.

One of the biggest reasons why results are never truly pure is because of fear. This maybe to do with missing out, not wanting to let profits slip, taking on too much size etc, either way it is a negative input that hurts the trader.

Closing trades mechanically Vs closing trades discretionary will always yield different results, but the discretionary method must have substance.

An example maybe;

You take a long trade and it moves 30 points in your favour, your target is 50:

Do you let price fall back 20 points before it "may" go back up to your 50 point target. Or do you see the warning signs, get out at +30 (ish) and look to re-enter lower?

With the mechanical examples given here, most will end up being stopped out on the pullback, or will have taken profits mid pull back due to fear. The rest will get stopped out at BE if prices fails to move back up.

Bottom line, you can only manage something you understand, if not, you are guessing;)
 
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The timed exit people have given their view. But for the rest...

Robster, lets say you have an entry, and your stop is 1.5 points away and you're looking for 1.5 points+, let's say 3 points as target (I know you trade discretionary and your profits based on your judgement, but for argument's sake lets just say you initially see a target of 3 points).

When it is 1 point up do you view this now as a trade that is 2.5 points risk, and 2 points reward, or are you still viewing it from the initial trade decision?
 
Shakone said:
The timed exit people have given their view. But for the rest...

Robster, lets say you have an entry, and your stop is 1.5 points away and you're looking for 1.5 points+, let's say 3 points as target (I know you trade discretionary and your profits based on your judgement, but for argument's sake lets just say you initially see a target of 3 points).

When it is 1 point up do you view this now as a trade that is 2.5 points risk, and 2 points reward, or are you still viewing it from the initial trade decision?
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I'm still viewing it from the original trade decision because it is (a) unrealised and (b) based upon my original trade hypothesis.

How it get's to 1pt up and what it does around the 1pt mark for me tells me whether I should bail or not. A 1pt +ve move is not a good indicator for successful directional selection on ES. What I would do though is:

a) Move stop to above the high of the entry point and drop risk to <1.5pts

b) Watch like a hawk for the signs of stalling around 1pt. If it is stalling then probably take a scratch or 1-2 tick loss. 1pt move is noise level, especially if T&S is showing healthy mix of buyers and sellers of note. That would be an early indication for bailing.

c) If it gets above 1pt, and there is a clear bias on T&S in my favour, then relax a little as it will probably hit 2pts. If it hits 2pts, it will likely hit 3pts.

I generally don't take 2pts risk/ 3pts reward trades these days - generally gunning for minimum 4pts reward although many of my trades end up at about 2ish pts as a result of trailing off the 10min chart when a low isn't tested for a second time (obviously) and it comes back and takes the trailing stop out.
 
This looks to me to be getting to the nit picking territory.

I like what this guy once said better. He said something about making money was to do with his sitting. Sit and don't think sounds a lot easier. I found it even easier when I slept and didn't think.
 
wallstreetwarrior87 said:
Bottom line, you can only manage something you understand, if not, you are guessing;)
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Guessing implies you even know it exists! I can remember a time when I wasn't even aware of the existence of many aspects of trading and continued on in blissful ignorance of some fairly crucial pieces of information...

Anyway, Prague was -7 last week. Good to see the UK is warmer.
 
BeginnerJoe said:
This looks to me to be getting to the nit picking territory.

I like what this guy once said better. He said something about making money was to do with his sitting. Sit and don't think sounds a lot easier. I found it even easier when I slept and didn't think.
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Are you saying your trading performance is inversely proportional to your level of consciousness :whistling
 
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