Statistical, Technical, Money managment

[Grey1]

To set your intelligent stop you have 6 choices:--

1) Technical such as ATR , Low of the day , ...below local support
2) Statistical such as 2SD away from a Moving average..
3) Fixed % such as 0.5 % of the price
4) Spread Stop .. Multiple of spread in the instrument Eg NTES spread 8C ( say 2 times the spread so 16 C stop) DOW =5 points ( say 3 times the spread so 15 points)

5) Combination
6) None above .. Gut feeling

Which type you use and why ?

I know it is a bit basic but at least changes the BB's atmospher..

 

[Rognvald]

ATR within money stop linked to a small percentage of my current pot size, as is the size of my "bet"
If things go well I can expand a bit - and of course I too often do the opposite!

 

[Skimbleshanks]

The two I use are:

7. Pattern formation of price bars
8. Pattern formation of volume bars

 

[Mr. Charts]

Reading sentiment through a combination of pattern price bars, time and sales (reading the tape) and some level 2.
Assessment of immediate past volatility is also essential in dynamically deciding stops. For example, if on the most recent 5 minute bars the stock price is ranging through $1.20, it would be unwise to exit on a fraction of that. However, the relationship also needs to be seen on 1 minute bars - you need to see both the wood and the trees.
As in CECO............. ;-)

 

[Grey1]

Skim ,

I suppose both price and volume formation come under Technical ..

May I ask how do you manage the stop using patterns?

 

[Skimbleshanks]

I set my stop (if I'm using one) at the commencement of the pattern, so that if it fails it gets hit, but if it doesn't get hit then trade continues.

I know that doesn't sound very helpful, but I can't explain it any better!

 

[Grey1]

Mr Chart,

Quote " Assessment of immediate past volatility is also essential in dynamically deciding stops "


Nice comment.. Love the term immediate past volitality ..

lets say CECO had an immediate range of 1.20$ , then where would you objectively put your stop to take the trade ?

What technical, statistical or other means would you consider to be best ?

 

[DaveGos]

I use a disaster stop which is .25% of the capital tied up in that particular trade, which I rarely have hit, and in the early stages of the trade I exit as soon as the trade fails to develop as expected.
Once I'm a reasonable amount in profit, say 10c, I move the stop to break even.

This probably costs profit but I'm very risk averse and I read somewhere that trading isn't about the winning it's about the losing.

 

[Mr. Charts]

Hi Grey,
Managing wildly volatile moves as with CECO are frankly very difficult on a close in and personal basis. What works extremely well on a stock moving more "normally" doesn't do so in a CECO scenario with huge bars.
I find the trade is better managed by standing back and looking at 5 min bars so you don't get whipsawed out of situations where the "noise" is so much greater. However, when the range settles to a more manageable level, any developing move is clearer, irrespective of whether it follows through or not. That is why I exited the final half of that trade when I did.
In other words, "objective" in the sense of reading the move unemotionally and acting, not "objective" but dynamic in the sense of not pre-determining an exit but letting the market dictate, not pre-conceived ideas.
So, looking at 5 min bars in CECO would add another dimension to anyone trying to understand the way I traded the move on Thursday.
Great to see a quality thread developing, grey1 ;-)
Richard

 

[bonsai]

As I trade mainly using price action leading to changes in direction of Moving Averages, I have stops which are set by the MA. My entry is either right or wrong.
I have been known to give it some time to clarify a false break
but that is not the norm.

So I dont have to worry too much about stops. I spend more time looking at set ups.


That puts me in your 'statistical' bracket but it isnt where I would put myself.

 

[Grey1]

These are my thoughts..

 

[Newtron Bomb]

Hiya folks

It depends on the market and current conditions as to which methods i favour. I try to gauge the conditions based on my most recent experiences combined with chart patterns and loss limitation.

Currently i am favouring a what i'm prepared to loose as a % of capital as a worst case, then each trade is managed individually based on time factors and price action.
Exits are dictated by the market and price action.
I sometime have a target in mind but i am not ridged and still let the market dictate my profits.

I suppose i fall into the "combination" category

Best wishes to all

Newtron Bomb

 

[DaveGos]

Thank you Gray 1 I found your analysis very useful and it is exactly what this BB should be used for,

 

[Cigar]

Grey1

Thank you for your document.

A problem is.. which ATR to use, on my 1 min chart, my 3 or my 5 min chart.

I checked the ATR(10) for all 3 on the Dax at 15.20 Friday afternoon.
They were:
1 min chart 2.9 points
3 min chart 5.3
5 min chart 7.0

If I use a stop of 2 x ATR, they my stop is either 5.8, 10.6 or 14 points.
I know I aren't going to allow myself to go 10 or 14 points adrift, at 25 euro a pt, so its got to be the 1 min...

But isn't this just back to the 'pain' level we can handle.. I'd be choosing an ATR setting to match my pain level..

 

[Grey1]

Cigar,

Of course the time frame you are trading determines the ATR limit .. For example the ATR for a weekly chart could be $5 while for a scalper could be 5C.. The choise of time frame depends on your style of trading and obviously your position size which again goes back to your total capital..

The beauty of Money management is that you start from the bottom up .. you start with looking at your capital first . and then calculate how much you are prepared to risk to take the trade..

When you want to buy a house , you first think if you can afford the mortgage than buy a 12 bed room house and later realise S**T I could not have afforded the house..

regards

 

[BlueChip Trader]

I use a percentage of average daily volatility of an instrument. Typically this is 25% for the FTSE 100 stocks, or 0.5% of stock price.

Gut feeling and fib levels play a small part too.

For DAT the stops would typically be around 0.25%.

 

[neil]

I use two time frames. One for general direction - the lower for entry. Point of entry depend on pattern/breakouts etc thus stop is nearby indicating early failure if such happens.

 

[kevin546]

It is suggested that 1 - 2% risk of your capital in anyone deal is a good risk management tool as it gives you enough room with losing trades to ensure you remain in the game or at least establish your trading strategy is no good before you have no money left.

I set mine at 2.5% as I am more confident now, it also depends on what style of trading you are applying because often I will stop within this %, such as a failed break-through or failed re-test. On these signals you try to get in as close to the relevant price as possible and you know that this is all over if the top or bottom is breached. If your in very close and it turns then you can get out for less than 1%.

Longer term trading is harder requiring wider stops and sometimes at levels that are further away from the 'well known' support/resistance to avoid being stopped out unnecessarily. But the 1 - 2% view should be maintained regardless of trading style.

 

[firewalker99]

I place my stop at 1 times ATR, with a first target at 2x ATR. Then afterwards I use a trailing stop...

 

[rajibde]

These are my thoughts..

Hi Grey1

Thank you for the excellent post. I have a question - Once the trade starts going into your favour (in an intraday scenario) how, should the stop be managed?

Regards

Raj