Stop Losses

[BSD]

Hi Andy, thanks mate, hope you had a good weekend too

I'm probably having a blond moment, but what is SR ?

Is it Hit rate, ie how many of your trades end up profitable ?

If so, you can play around a bit with this here to see that low hit rate strategies do not by any means need to imply an entry into the danger zone, eg try a system that is "right" only 1/3rd of the time, with winners, on average, three times the size of losers:

Random Equity Curve Simulator of a trading system. Learn it before you trade

"William Eckhardt:

The Win/Loss Ratio
“One common adage on this subject that is completely wrongheaded is: You can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. …

What really matters is the long-run distributions of outcomes from your trading techniques, systems, and procedures. But, psychologically, what seems of paramount importance is whether the positions that you have right now are going to work. Current positions seem to be crucial beyond any statistical justification. It’s quite tempting to bend your rules to make your current trades work, assuming that the favorability of your long-term statistics will take care of future profitability. Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance.”

That said, what is perfectly true, however, is that, depending on the trader, a high hit rate system may be easier to trade psychologically.

Re Trader Dante, I haven't been following latest developments, I just sincerely hope for his own sake that he doesn't change his own trading style that has provided him with so much success , don't change a winning team and all that sort of thing.

Have a great and profitable week Andy

 

[tune]

You can generate a random chart of anything, and that chart will look exactly like a real chart of a real instrument !

Have you got one to hand? Can't say I've seen one of these.

 

[black bear]

Hey Blondy you son of a b.........................

Hi Andy, thanks mate, hope you had a good weekend too

I'm probably having a blond moment, but what is SR ?

Is it Hit rate, ie how many of your trades end up profitable ?

If so, you can play around a bit with this here to see that low hit rate strategies do not by any means need to imply an entry into the danger zone, eg try a system that is "right" only 1/3rd of the time, with winners, on average, three times the size of losers:

Random Equity Curve Simulator of a trading system. Learn it before you trade

"William Eckhardt:

The Win/Loss Ratio
“One common adage on this subject that is completely wrongheaded is: You can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. …

What really matters is the long-run distributions of outcomes from your trading techniques, systems, and procedures. But, psychologically, what seems of paramount importance is whether the positions that you have right now are going to work. Current positions seem to be crucial beyond any statistical justification. It’s quite tempting to bend your rules to make your current trades work, assuming that the favorability of your long-term statistics will take care of future profitability. Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance.”

That said, what is perfectly true, however, is that, depending on the trader, a high hit rate system may be easier to trade psychologically.

Re Trader Dante, I haven't been following latest developments, I just sincerely hope for his own sake that he doesn't change his own trading style that has provided him with so much success , don't change a winning team and all that sort of thing.

Have a great and profitable week Andy

BSD

Blond moment, get out of it

SR = wins to losers

If you get 80% of profit from 20% of win trades = exposed to lots of BE stop outs as per td method and what he concedes is business as per usual for him, failed trades etc in order to get the good runner that makes up for long lose runs.

Just looks to me like the lose run will eventually wipe you out =law of probability at work :?:

I agree with you the market is all random, or at least thats the most healthy mental outlook, all TA is questionable imho, we use it because we are humans and desire control over something that there is no control, an illusion of control.

why expose yourself to the law of probability by playing for big/large wins of a few good trades instead of allowing the law of probability to protect you.

I take it you base your trades on some form of backtested strategy thats based on TA and a errrrrrrrrrrrrrrrr random dynamic market thats forever changing :?:

db appears to enter the market based on that in its purest form and by the sound of it attempts to run profits in the same way once a good entry as been made, I try to do it that way or similer

I am not going off to check because I now that 20% of my good trades account for the the very good above average profitable trades I make. So I think we have followed the 80/20 rule but do not expose ourselves to the same risk of bank drawdown imho as you and td do.

might be way off track, I obviously prefer a higher SR and always have so I could be very biased and wrong about this one.

I can see how it makes some sense with a relative small bank that you would not mind losing at all

thats me done BSD, can"t think of anything else

haaaaaaaaaaaaaaa just cut a winner short again, coulda woulda shouda have had more

gone

 

[BSD]

Tune, have a look at this video, that sums it up perfectly methinks re random:

Random doesn't mean you can't make money trading

I agree with you the market is all random, or at least thats the most healthy mental outlook, all TA is questionable imho, we use it because we are humans and desire control over something that there is no control, an illusion of control.

Excellent, I totally agree !

I take it you base your trades on some form of backtested strategy thats based on TA and a errrrrrrrrrrrrrrrr random dynamic market thats forever changing :?:

I keep it really simple, I basically do what Jesse Livermore did almost 100 years ago already, I just follow the path of least resistance in markets. I buy when it goes up, I short when it goes down. And, also like Livermore, I don't for a minute believe that it's my thinking that earns me my money, like with him my profits stem from nothing but my sitting tight and holding on to a trend until it bends, all the way through retracements and all.

 

[black bear]

Tune, have a look at this video, that sums it up perfectly methinks re random:

Random doesn't mean you can't make money trading



Excellent, I totally agree !




I keep it really simple, I basically do what Jesse Livermore did almost 100 years ago already, I just follow the path of least resistance in markets. I buy when it goes up, I short when it goes down. And, also like Livermore, I don't for a minute believe that it's my thinking that earns me my money, like with him my profits stem from nothing but my sitting tight and holding on to a trend until it bends, all the way through retracements and all.

BSD

right I really am off after this post

good trading this week BSD, I realise you might not get a bend all week in your time frame

 

[tune]

Tune, have a look at this video, that sums it up perfectly methinks re random:

Random doesn't mean you can't make money trading

Thanks. I can see how a randomly generated chart can be traded but can not see how a randomly generated chart is the same as the chart of an instrument. To my mind the chart of an instrument has three components. The price that an exchange took place, the time of the exchange and the number of exchanges made.

Whether the number of contracts exchanged is shown or not they did happen. It would be interesting to see what a random generator would make of this.

 

[chump]

People make prices , people program computers to trade, people have behavioural patterns ,they can't help it even when they try, do you know how hard it is to be totally random in your behaviour ,nigh on impossible and especially so when you try like most people to structure your activity according to a time regulated marketplace/job..... a random generated chart programmed by people will look (ironically) just like any real price chart...I've heard this argument before about random generated charts..it's still flawed.Although making money from a 'random' philosophy is certainly possible ,but not because of the philosophy ,but because of the behavioural pattern it can impose upon a traders risk/money management.

 

[new_trader]

So you cross the street without looking then? :whistling

FW, I am amazed you would say this! It has nothing to do with crossing the street without looking.

Read over BSD's post again and you will see that there is an erroneous assumption and it is proven erroneous by contradiction. You don’t even need to understand trading to see it.

 

[new_trader]

[edit]

The real problem is that people like to believe that they are clever, and that they can, through their cleverness, analyse situations, come up with the correct answer, and solve problems.

No, the REAL problem is that people don't believe they are clever enough and end up surrendering their intelligence to people who are less clever.

 

[dbphoenix]

FW, you clearly do not yet understand the difference between a stop and an exit and I just don't have the time. Perhaps someone else can explain it to you. Either way, I'm sure that you will muddle through.

Happy trading.

 

[Crap Buddist]

wheat is making record highs as stocks dwindle to lowest levels since WW2. Is that random price behaviour? guess my weetabix will be going up again.... bahhhh..fftopic::drunk::jester:

 

[firewalker99]

FW, you clearly do not yet understand the difference between a stop and an exit and I just don't have the time. Perhaps someone else can explain it to you. Either way, I'm sure that you will muddle through.

Happy trading.

I understand you posted (a) a chart where you indicated you did use a stop and (b) at a later time a chart where you said you would not use a stop.

Either you meant 'exit' instead of stop in one of those occasions, or you are have decided there are two different definitions to the word 'stop'.

It's a shame it comes down to "I don't have the time" whenever a straightforward question is being asked.

 

[dbphoenix]

People make prices , people program computers to trade, people have behavioural patterns ,they can't help it even when they try, do you know how hard it is to be totally random in your behaviour ,nigh on impossible and especially so when you try like most people to structure your activity according to a time regulated marketplace/job..... a random generated chart programmed by people will look (ironically) just like any real price chart...I've heard this argument before about random generated charts..it's still flawed.Although making money from a 'random' philosophy is certainly possible ,but not because of the philosophy ,but because of the behavioural pattern it can impose upon a traders risk/money management.

True. Markets are not random, but they are unpredictable. This may seem like a minor distinction and is probably immaterial to a mechanical trader. But to a discretionary trader, the distinction is not minor at all.

 

[dbphoenix]

It's a shame it comes down to "I don't have the time" whenever a straightforward question is being asked.

No more of a shame than my asking straightforward questions and your skittering off in other directions.

Now if someone else who's serious wants to discuss this, fine. If you prefer to argue, do so in private. Otherwise, leave it alone.

 

[firewalker99]

No more of a shame than my asking straightforward questions and your skittering off in other directions.

As far as I know, the thread title is 'Stop losses' and not 'my trading plan'.

Now if someone else who's serious wants to discuss this, fine. If you prefer to argue, do so in private. Otherwise, leave it alone.

Given the fact the some members have approved my question posts, it must be that others are wondering the same, so I see no reason to discuss this behind closed doors.

But allright, if you don't wish to answer, I can't force you. It's just remarkable that you would make two such 'apparently' contradictory statements, that's all. Sorry I brought the whole thing up in the first place, if you want every nose pointing in the same direction, what's überhaupt the point of discussing anything?

 

[dbphoenix]

as a newbie i would like to say,having read most of this thread,that they must be a point ,surely,where the reason for entering the position in the first place becomes nul and void at some point when the price goes against you.to stay in the trade any longer must be living in hope!!??

therefore why not put hard stop at that point??it just seems to me to be pointless NOT putting stops as long as you give your trade room to move.??

If your reasons for entering the trade become null and void, exit and reassess what you see. If you see another opportunity, re-enter. If not, stand aside. To do otherwise is to hope that the market provides you with an unexpected gift.

 

[new_trader]

Essential Read

http://www.trade2win.com/boards/247350-post33.html

Right Sir, on another thread on these boards I made two statements about what in essence are fundamental principles for any stock operator, futures trader or dealer in securities, commmodities or even currencies.

Anyone who is accomplished in the art of trading effectively in any market will recognise the validity of my statements, and I may add, that silence gives consent from the really expert few, but what happens is that when statements of quality are made on these boards they tend to stimulate the rabble to respond unfavourably when in fact they ought to be listening intently and not interrupting with rude and inept comments.

The two statements I made were "Survival of the Fittest" and "Merit, Ability and Conduct".

Let us take the first. The markets are not there for the benefit of individuals who have a gung ho attitude. They, as a by product of the way they are constructed, serve to punish, and I may add, punish severely those who adopt a cavalier attitude to trading, because, contraty to what is popularly disseminated here and elsewhere, it is not some silly little game that anyone can play, it is a profession. For this reason, the market sorts out the cavalier trader from the prudent and skilled. Luck, which may for a time be on the side of the unprepared, is not sustainable. so first of all there is a proper way of going about things and an improper way of going about things with ultimate inexhorable results.

This brings me to the second statement "Merit, Ability and Conduct"
We are going to concentrate for the purpose of this illustration to follow, on the question of Ability.

Because this is a profession and not a pastime, it requires the development of skill. This skill has to be underpinned by knowledge. And this knowledge has to be a vast pool from which to draw, because at any given moment any component of this pool has to be accessible in an instant, without hesitation of any sort, to be able to properly identify what is a real opportunit;y, against a very convinving mirage to be avoided by abstention, or by opposite response, as appropriate.

Now in simple terms, what happens is that none of us are born knowing. If we were, everyone could and would succeed immediately, which is not the case. In consequence of this obstacle, we have to undergo a process of learning to teach ourselves. This is a gradient which can take a very long time to climb, but I promise you, there is an ultimate end to it. It feels like climbing a mountain and finally getting to the summit, where there is no more mountain to climb but the reward is a sort of anticlimax, like the view the climber is entitled to enjoy.

Throughout this long climb, the act itself of climbing causes the climber to teach himself to climb more effectively. A seasoned climber who has climbed many mountains will climb more effectively than a new climber. Let us transpose this idea to trading. What I am imparting to you is that persistent attempts lead to improvement in ability.

Commensurate with the level of ability is the capacity to undertake what we shall call missions. Fortunately there are only three, Long, Short and Abstention. It could be worse, so we must be grateful there are only three possibilities, three options in this regard.

As the level of ability rises, together with the rising of this level and harmonious with it also three things develop. These are choices. Because they are choices they cannot be mechanised, they cannot be fudged, and they cannot be altered, because they are the expression of will. They constitute committment. As they constitute committment, once committed they cannot be undone, which is what makes this profession unique.

But what happens is that through the gaining of proficiency, these three choices do not exactly take on a life of their own, but evolve and become more and more accurate, and more and more refined.

I am specifically referring to Timing, the Point of Entry and the Point of Exit.

When the market begins to "talk to you" instead of just baffling you, the Point of Entry selects itself for you and the Timing is the right one. In consequence of this, you repeatedly and confidently experience the position going in your favour immediately. The stop, which is a crucial safeguard for everybody, is now quickly left behind. With progressive increases in proficiency leading to accurate entry and perfect or near perfect timing, the stop can now be narrowed and squeezed to the limit, taking into account the spread. The other thing that happens is that the exit point becomes clearer and clearer, as you begin to detect exhaustion or imminent reversal.

One percent of capital employed is a vast amount to risk. One fifth of this figure is what you should ultimately aim for or thereabouts.

But in the very early stages in your development as a trader you should begin to cultivate the use of tighter and tighter stops as you progress, because not to do so constitutes dereliction of control. Ultimately risk is about being able to control unforseen losses.

Nearly all of trading is about control. The most important aspect is the control the trader places upon himself to start with. With attainment of progressive proficiency over time, you will see and experience that everything else takes care of itself and falls into place neatly.

The price you have to pay is self governance of absolutely the highest order, and nothing else.

I therefore do not agree with theories involving wide stops or stops placed under the last reversal and such other tripe, I maintain that the trader has to assume complete and utter responsibility for his decision, all else is an excuse.

This attainment of self governance of the highest order is the single most difficult discipline most people have difficulty in mastering. You must take steps to master it, otherwise it will master you, with dire results.

I hope and expect that this comprehensive explanation serves to satisfy your query.

 

[firewalker99]

The stop, which is a crucial safeguard for everybody, is now quickly left behind. With progressive increases in proficiency leading to accurate entry and perfect or near perfect timing, the stop can now be narrowed and squeezed to the limit, taking into account the spread. The other thing that happens is that the exit point becomes clearer and clearer, as you begin to detect exhaustion or imminent reversal.
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If I understand correctly, you are advocating that a razor-sharp entry means you don't need stops anymore. But whether or not the entry is "perfect or near perfect timing" is something you only know in hindsight. Unless you stop yourself out if price does not immediately move in the favourable direction - which isn't necessarily a bad thing - I'm afraid this could lead to 10 stops and 10 re-entries in as many minutes. There's always the possibility that you've misread the market and as you're leaving stops behind, you're basically saying that there is zip chance that price will do something that you are not expecting.

 

[firewalker99]

Thanks. I can see how a randomly generated chart can be traded but can not see how a randomly generated chart is the same as the chart of an instrument. To my mind the chart of an instrument has three components. The price that an exchange took place, the time of the exchange and the number of exchanges made.

Whether the number of contracts exchanged is shown or not they did happen. It would be interesting to see what a random generator would make of this.

What if the number of exchanges that took place isn't available (for example FX)?
Are there any other elements missing from the chart if you have price & time?

 

[tune]

What if the number of exchanges that took place isn't available (for example FX)?
Are there any other elements missing from the chart if you have price & time?

Just because it is not available does not mean it is not there. Add up all the forex deals from wherever they get made and you would have a number. Obviously a lot easier with something like the YM.

Other elements missing? Like what? A chart is a record of deals made by people - take that out and what is it? That sort of thing?