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

[roguetrader]

Roguetrader,

Kindly remember that the following was written before you made the last two posts. Does this address the points you were making?

In 1985 I built a small portfolio and it became big enough for me to cash in some of it for a deposit on a house and buy a car. The residual balance then multiplied a few times and I started dreaming about buying a bigger house with cash and no borrowings. As the months went by the portfolio got bigger and bigger and by mid 1987 I was almost there. In the Summer I needed to go on holiday so I decided to cash some of it in and place the cash i the bank. I returned in early October and the value had decreased a bit but it was no cause for alarm as the shares were growth stocks, high yielders and had solid business models (no go go crap for te Lion); so I decided to sit it out.

Then one morning I woke up and the trees had all be blown down, broken glass all over the place etc. Nothing too drastic, cleaned up a bit of the mess had breakfast and switched MarketEye on (that thing used to cost a fortune and the charges were per minute), my heart skipped a beat as all I could see was a sea of red. Well it was not a catastrophe as even losses of 30% still meant that most of the holdings were in profit and I could liquidate my positions, bank the cash and go away on another holiday.

What did I just say?

Where were my market stops placed with my brokers? Where were my mental stops lodged in that coconut I called a brain? THEY DID NOT EXIST and the rest is history.

Indeed that illustrates a point quite well.

 

[black bear]

I really don't understand where it is you get these stupid ideas from ducatti.

Any enterprise that involves risk must have provision for dealing with that risk.

You cannot have profit without risk.

Risk is further accentuated when the enterprise deals in a product which is in some way perishable.

If you go to a fruit market, you will see how it is that the costermongers think nothing of tossing out the odd item of fruit that has begun to perish or has ben pecked at by a bird or is in some other way not acceptable.

They just toss them out. They don't wring their hands and moan because they have to toss out a few fruit. It is within the nature of the business that this is something they have to do so as to prevent a potentially bad situation from getting worse.

In any business where there is risk either real or implied, the provision of measures to countermand that risk are imperative.

Trading is no exception.

Don't for the goodness sake post any more of this nonsense as it only serves to confuse and mislead beginners, and that is not fair. If you have more silly opinions like these it would be best if you kept them to yourself and not posted them in a public forum for everyone to read.

But, if you insist on posting silly nonsense at least give newbies a chance by underlining nonsense such as this with some sort of caveat, so that they know it is not to be taken seriously, please.

Very good post and not worthless, anybody can understand this post SOCTRATES.

Ahhhh, forced to eat my own words and they are not so sweet

Not much to add, Except I let the market tell me where to put my hard Stop loss not Capital Spreads, I think its a good feature for an excited newby if they forget and cop for a news announcement and sudden plunge or disconnect etc

A gambler / well is a gambler and cant help himself he"s just got to no what the other guys hole card is, even when its plain to every one else his chances of winning are well against the odds and the value of the pot does not merit a call.

In other words the gambler is clearly playing the game emotionally and hopeing for a favourable outcome

I prefer to play with a little bit more self control than that, and search for a few small EDGES.

Sorry could"nt help myself, ahhhh Im out of control

 

[Black Swan]

Kiwi

Interesting and your reference to Stridsmann.

Kaufman, also, has some good thoughts on stoplosses. Firstly, he shows that the size of stops results in losses very close to a constant value:

Size of stop...................5.................10..................20
No occurences............20...............10..................5
Loss..............................100.............100...............100

Secondly, he conducted a 10 year test of stoplosses (from .02% to 10%) applied to a simple moving average trend following system across four markets with trend periods ranging from 5 to 300 days. Overall, the performance of the trend program without a stop loss proved to be best for the range of trend periods, although specific stops were better for some intervals.

Despite these results, he says, it is difficult to trade without a clear idea of risk. Stops help here but a system should always be tested to compare with performance that does not use a stop. The safest way to reduce risk, he concludes, is simply by reducing the size of your positions.

ps: nb, the analysis was about fixed stops and not those based on support/resistance which may be quite different.

good trading

jon

bump..

 

[Christiaan]

always the gambling comparison...what a load of bull **** .Does it even matter?Either you make good money and it is worth your time or you don't it is as simple as that.Losing trades are like expenses just like any business that has expenses...you need to pay rent and salary's and electric bill...and so on and so forth.

When you are trading sucessfully your earning potentail is limitless.In fact it is only limited to your capital but when you double your account you can double your risk.This is common sense...don't waste people's time comparing it too a bluddy slot machine

 

[safvan]

Stop losses cannot and never would be a recipe for failure..Its the way we manage to get out of losing positions. Trading is a business and stop losses when triggered are our expenses. Regardless of whether we use them or not, we should always keep winners higher than losers and in the end if the outcome is positive we have made a profit.

You cannot run a restaurant without expenses paying staff and for inventories. In the end of the month if your revenues are more than your costs, you make a profit. The more customers you attract or the more busy the more revenues you get BUT this also INCREASES your costs. The same rule applies whether you are trading $1 Million Dollars or $1000. Keep revenues high while keeping costs low...Stop losses make sure you do not over spend while expanding your business.

 

[AlexLutiera]

In order to stop loss, a trader or investor, must know on how to handle his/her business. A trader or an investors goal, is to get PROFITABLE. And, in order to be profitable, he must work hard and have good strategies in order to convince people and make a good market. When you have loss, there are times that could say you have to give up. But, when you think of that, you must also think to start A NEW! =D

 

[TheBramble]

It's a Christmas Cracker Trading Bot.

 

[anley]

Learn to love stops, they're your BEST friend when trading (leveraged markets).

 

[Exolon]

If you're using any automated strategy and can perform backtests, it quickly becomes obvious that stop losses are an extremely important and powerful tool.

Better yet, a strategy parameter optimiser can search for relatively good values for take profit and stop loss thresholds, which often produces unintuitive results, so it's important to do this if you can. Initially, I was setting my stop losses far too low - now the stop is about 3-4 times bigger than the take profit (i.e. over 110 pips vs some 30-40 pips, for EUR/USD forex).

Of course, it totally depends on the strategy you use, how accurate and aggressive it, and what timeframe it acts upon.

 

[CortneyWilliams]

For me stop-loss strategy is a great method to avoid any loss of money. It's a wise decision to engage in this strategy.

 

[ichi]

For me stop-loss strategy is a great method to avoid any loss of money.

The fact that there is stop loss means $$ is lost.. actually it should be to "avoid any more money than you could have allowed to lose"

 

[ichi]

some people do not usually put stop loss because

1) they have more than enough $$
2) they know when to get out because they are always around the comp
3) they trade only 1 or 2 pair of currencies.
4) paper lost is nothing to them..
etc

 

[Cornix]

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

If it was possible to find some signal, which would predict price (or volatility or whatever one can bet upon) with 100% probability, then your theory would be true.

But in reality that is hardly possible, because speculation basically is exactly professional gambling (game of odds) and stop-loss or other risk management component is absolutely necessary to manage trades in a way to keep odds in your favour.

 

[CortneyWilliams]

The fact that there is stop loss means $$ is lost.. actually it should be to "avoid any more money than you could have allowed to lose"

...yeah...that's what I'm trying to say..."to avoid losing more money"...

 

[cyoungmark]

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

lol every business cuts their losses.

 

[TIG-Michael]

wow

 

[DionysusToast]

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

If you are searching for something with guarantees, then you will look a long time.

 

[DionysusToast]

Jeez - I just quoted a 7 year old post. What a dumbass...

 

[Paulds11]

Any sensible trader uses at least a mental stop loss, but setting them too tight and not applying them to a specific strategy is a common error in their use. Stop losses are critical . To believe them not relevant is outlandish. Next topic

 

[DionysusToast]

I don't use stoplosses (other than the automated one provided by capital spreads).

My systm/rules of trading tell me when I should enter and exit a trade, therefore, my stop is indicated by the market, not a predetermined figure. IMHO it doesn't make sense to use them. each trade is different and consequently a stoploss can ruin what would be a good trade.

lol!!!