Stoploss.......Theory of Failure.

[ducati998]

DARK,

For sure it doesnt evaluate MARKET RISK! Thats my job! The stop controls the risk of my opinion

We have 2 concepts here;

1......Market Risk
2......Your opinion.

If you evaluate "market risk", quantify it, and effectively manage it, then no stop is required.
"Opinion" qualitative factors, some common sense will normally prevail, if in doubt avoid.

cheers d998

 

[peterpr]

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

Two further points from the above

1. You might have added "because you will always be 100% correct about market direction from the time you execute your trade to the time you close it". And put like that it has a certain implausibility about it wouldn't you say?

2. Why should stops be excluded from effective management of risk unless you can indeed be 100 % correct about market direction?

 

[darktone]

DARK,



We have 2 concepts here;

1......Market Risk
2......Your opinion.

If you evaluate "market risk", quantify it, and effectively manage it, then no stop is required.
"Opinion" qualitative factors, some common sense will normally prevail, if in doubt avoid.

cheers d998

well..it makes 0 sense to me.. but it wouldnt be the first time..
GL

 

[SOCRATES]

I like that Darktone.....0 sense.....marvellous !

Of couse it makes zero sense. This is because the trader ( and we are entering the silly closed loop argument again) cannot change the outcome. If he had the power to change the outcome, no stop loss precaution should or would be needed.

Neither 1 nor 2 would then apply. Simple.

 

[ducati998]

PETERPR,

You might have added "because you will always be 100% correct about market direction from the time you execute your trade to the time you close it". And put like that it has a certain implausibility about it wouldn't you say?

Market direction, market risk, are problems for traders, hence the requirement of the stoploss.
But, if you can protect your capital ( no PERMANENT loss thereof ) and get paid cash immediately, and on a regular interval, ( return ) with the expectation of increased capital appreciation at some point ( days, weeks, months, years ) would you feel the requirement for a stoploss?

Why should stops be excluded from effective management of risk unless you can indeed be 100 % correct about market direction?

Because there are any number of ways to nullify the EFFECT of market direction.
But lets be perfectly clear here, the returns are not in the order of calling say buying a leveraged futures contract, and having it move 1000pts in your direction in 3 days.

What we are talking about is an average compounded return of 24% over the last 60yrs.
After you have calculated what that means in real cash, if you still are not interested, so be it.

cheers d998

 

[JumpOff]

Ducati,
If a stoploss is not the trader's best tool to manage risk, will you care to enlighten us as to a better one?
JO

 

[kriesau]

Ducati,
If a stoploss is not the trader's best tool to manage risk, will you care to enlighten us as to a better one?
JO

There isn't one !

 

[wasp]

Don't lose.

 

[JumpOff]

There isn't one !

Ducati's post #86 indicated that the best thing to do is to use an appropriate tool to manage risk. I'd like to hear what alternative tool he uses, since Ducati has said numerous times that it is not a stoploss.
JO

 

[ducati998]

JUMP,

I fully intend to, T2W asked for an article, which I wrote last week, FRUGI is just verifying references and will I presume post it if happy.

The no stoploss recommendation was always going to be contentious, hence the thread to "promote" the no stop paradigm.

I also expect to add a further thread on additional techniques of managing risk & return in conjunction with those detailed in the article.

The article is written for "traders" as there was no point writing an article for investors, as bar LION and myself, there are none on this site.

KRIESAU

There isn't one !

WASP,

Don't lose.

And therein lies the answer. Once you can master that, all else just flows.

cheers d998

 

[peterpr]

PETERPR,
Market direction, market risk, are problems for traders, hence the requirement of the stoploss.
But, if you can protect your capital ( no PERMANENT loss thereof ) and get paid cash immediately, and on a regular interval, ( return ) with the expectation of increased capital appreciation at some point ( days, weeks, months, years ) would you feel the requirement for a stoploss?

Another Eureka moment for me ! That's two in one day - must watch the old ticker.

It's dividend income and the POSSIBILITY of capital appreciation then? Nothing wrong with that.; ultra safe but with an ROC lower than, in my experience, is consistently possible with disciplined full-time trading which (by definition, also IMHO) includes the use of stops.

The problem with the starter post though, is that it appears to be saying that the use of stops is unnecessary to successful trading. That's rather different from arguing that successful, consistently profitable trading is a pipe dream, which seems to be your real position.

What we are talking about is an average compounded return of 24% over the last 60yrs.
After you have calculated what that means in real cash, if you still are not interested, so be it.

I haven't been investing or trading for 60 years, neither I suspect have you. In any case, as must be repeated ad-nausiem to retail investors, past performance should not be relied upon as a guide to the future + 'the value of your investment can go down as well as up' (sound familiar?).

My guess is we're just talking about differences in time-frame and time committment and that the whole 'stop-loss' thing is a bit of a red herring.

 

[ducati998]

PETERPR,

It's dividend income and the POSSIBILITY of capital appreciation then? Nothing wrong with that.; ultra safe but with an ROC lower than, in my experience, is consistently possible with disciplined full-time trading which (by definition, also IMHO) includes the use of stops.

No, dividends are not "risk management", although they are 1 of 3 components of return.
Risk management is the preservation of original capital.

However, a subtle use of dividend policy, rate, and consistency by management can be used in part of a company evaluation, but this is a large topic.

The problem with the starter post though, is that it appears to be saying that the use of stops is unnecessary to successful trading. That's rather different from arguing that successful, consistently profitable trading is a pipe dream, which seems to be your real position.

No, I maintain my original argument, stops are unnecessary, not only are they are unnecessary, they are actually harmful to the trader.

I haven't been investing or trading for 60 years, neither I suspect have you. In any case, as must be repeated ad-nausiem to retail investors, past performance should not be relied upon as a guide to the future + 'the value of your investment can go down as well as up' (sound familiar?).

60yrs, no neither have I.
Past performance should not......................................Hold that thought, very important and I shall return to it as a basic truism of the market.

My guess is we're just talking about differences in time-frame and time committment and that the whole 'stop-loss' thing is a bit of a red herring.

Well you'll need to judge for yourself on that point.
cheers d998

 

[kriesau]

JUMP,

I fully intend to, T2W asked for an article, which I wrote last week, FRUGI is just verifying references and will I presume post it if happy.

The no stoploss recommendation was always going to be contentious, hence the thread to "promote" the no stop paradigm.

I also expect to add a further thread on additional techniques of managing risk & return in conjunction with those detailed in the article.

The article is written for "traders" as there was no point writing an article for investors, as bar LION and myself, there are none on this site.

KRIESAU



WASP,



And therein lies the answer. Once you can master that, all else just flows.

cheers d998

Be VERY interested to read it.

 

[wasp]

As much as I'd like to say I never lose, I am not that fortunate. I do agree however that a stoploss is harmful to a trader. Trading forex, awaiting a movement to bring back into line something that may have been a mistake can require a huge amount of capital.

The thing to do is to ensure that the majority of trades are profitable, if only slightly at times. This may mean taking less trades this way but I can afford to be more confident in the trades i do make and I would rather take a 50/100 pip, week long drawdown rather than a succession of stoplosses.

Too many times I have traded with tight stops and wound up unchuffed at the weeks end, yet other times I have decided to let losses run, confident that the price will end up in my favour, and the latter choice has always proved more profitable.

 

[roguetrader]

As much as I'd like to say I never lose, I am not that fortunate. I do agree however that a stoploss is harmful to a trader. Trading forex, awaiting a movement to bring back into line something that may have been a mistake can require a huge amount of capital.

The thing to do is to ensure that the majority of trades are profitable, if only slightly at times. This may mean taking less trades this way but I can afford to be more confident in the trades i do make and I would rather take a 50/100 pip, week long drawdown rather than a succession of stoplosses.

Too many times I have traded with tight stops and wound up unchuffed at the weeks end, yet other times I have decided to let losses run, confident that the price will end up in my favour, and the latter choice has always proved more profitable.

I would be a little careful here, the purpose of this thread was not to advocate the abandonment of stops for normal trading, but rather to set the stage for what he sees as an alternate stratedgy that he feels controls the risk in a different manner. Now if you are trading in such an alternate manner,(whatever that may be) that your risk is controled without the use of stops then so be it. But if you are simply abandoning stops during normal trading then you may be exposing yourself to risk of considerable loss of capital. Whatever you do you would be strongly advised to take some sort of precaution to control capital loss.

 

[wasp]

Ducati said that the article written was for traders and although I don't know the content of his theory I tend to side on his opinion of stoplosses are detrimental to your success. Having tried both angles I favour the lack of stop losses and rather let my judgement be my guide and only have catastrophe stops in order to let me stay in the game (Like FC and his live and die by the sword...) (although this has never happened a yet.) Like I said, I take losses but they are due to my knowing they are incorrect trades as i still have a lot more I wish to learn, but not through having stops just 'because it is written, so shall it be done.'

Until the detail of D998's article is reveiled, not much more can be said, but just my opinion on stops.

 

[roguetrader]

Fair enough wasp, but be aware he also said this.

TA has no edge.It is chasing momentum plain and simple, that momentum can change in a heartbeat, that is why you require a stoploss.

But, as "feel" is prone to being tempermental, stops are still required, as you are trading momentum, and for you "THE MARKET IS ALWAYS RIGHT

All I was pointing out was that when someone describes a situation where something is not needed and you like the sound of it be sure you understand the situation first.
As for crash stops, that's fair enough, then you are trading with stops.
I point this out because you may well be very experienced, a very successful trader, others reading this stuff may not be, and they go away with the idea, 'A guy on T2W is doing real well and he doesn't use any stops at all, says stops just lose you money.' At least leave them a fighting chance.

 

[Quenkish]

Stoplosses.............
Have an interesting history. Now an integeral component of money management, they take their origin from professional gambling money management.

If that has never given you pause for thought, possibly it should have.
The acceptance of the stoploss as a valid adjunct to a "trading" system or methodology raises the logical conclusion that the underlying enterprise is subject to loss, and serious loss, so much so that the Stoploss is a necessary component.

Any business enterprise that relies on the ruthless cutting of losses to provide a "profit" has serious flaws.

Charts, P&V, Technical indicators, take your pick are all inherently worthless without the addition of the ubiquitous stoploss............what does that really tell you?

It says to me find something that guarantees you make money on aggregate, without the need to ruthlessly execute a tool stolen from professional gambling.

cheers d998

i have just reread (again!!!) market wizards 2 monroe trout interview, it is very interesting what monroe trout says about stop losses & how he exploits the stop losses placed by other traders. i recommend that you read his interview if you have not already done so.

 

[SOCRATES]

Now, does all this mean that investors can ignore the idea of limiting losses on investments that turn out not to be brilliant and just hang on to stocks that are sliding without an end to the slide in sight ?

Does a businessman continue to fund a business that does not work for whatever reason and is so enamoured of it or whatever that against all reason is willing to drip feed it to keep it afloat against all odds and keep on clocking up losses ?

Is an investment exonerated from turning sour and proceeding to have its market value eroded ?

What kind of nonsense thinking is all this ?

 

[JumpOff]

Well I will be eager to read the article. I can't imagine entering a position without understanding and limiting the risk. Stops are the traditional way for traders to handle that. Ducati says he has another way to manage risk, - (perhaps its hedging, selling covered options and using the premium to buy an option opposite your contract position, or some other less traditional method). I willing to listen.

I haven't hammered any nail yet, but golly you should see my fancy toolbelt!
JO