Stops

[black bear]

All good posts

Some excellent posts imho more thinking matter

I have only traded 2 years from scratch to profitable, I still have buckets to learn

All experience (95%) trading one market only and always taking it serious = I want to Improve on overhaul method and own skills etc

I find my single cell amoebic brain Just can"t cope with more than one market, input information from more than the Ftse and Dow is just to much for me, so have stuck to Ftse in a disciplined manner for no other reason than to cut down the varibles being just a wee weedhopper trader and still learning.

I have found that ~ the Stops sight really do select themselves if like new trader says you exercise patience and improve your entry and exits etc

In the past the Stop location as only caused me problems when .................

The trade was just plain wrong !

What imho makes it worse for everyone is the random factor of the market rewards you for perhaps doing something that you really should not be even contemplating:?:

I just think you trade to a standard and try and improve the overhaul standard of your trading method and your trading qualities as an individual like Zupcon as said in the above post .

Basically work on your own shortfalls as a trader.

Adjusting / tweaking Stop position is wasted effort imho, your own trade record will tell you where your stop should go exactly once you have a large enough amount of trades you have executed consistantly.

Messing with stop location and dwelling to much on this aspect alone is not really very productive imho its just a clever way the brain as found to try and be right more often.

The trader wishs to be right and moving and adjusting the Stop without justification based on his or her own trading results is almost sure to be a warning imho

It was with me

Latter

 

[Mr. Charts]

Paul71,
I can only speak about US shares as trading them has been my living for many years. Although many of the principles apply to other instruments I only feel comfortable talking about what I really know and trade myself.
If you watch a share trade, how buying and selling pressures ebb and flow, how different players including market makers behave you start to develop a sense of what is happening. There are other, simpler and easier times, when market maker behaviour is obvious. Now how market maker orders are worked is a different matter and is related to other factors like vwap and institutional orders. For example, there might be instructions to buy at a certain average price and the MM might try and push the price down in order to buy at a lower level.

You ask why traders have losing trades. There are scores of reasons including lack of knowledge and understanding, personal trading weakness based on fear and greed, not trading a successful plan and so many others.

There are also the unknowables, the Black and Grey Swan events as well as the mundane everyday things like a MM deciding to halt a fall in price by buying at a certain level. Also MMs are susceptible to the buying and selling pressures in the market and will usually act accordingly and flexibly. If for example there is a great deal of buying and a MM is selling he can decide at any moment to pull his orders whether they are real or not or head fakes and let the price rise and sell into higher prices.
No simple answers I'm afraid, but the main thing is this is a probability business and there are no certainties only probabilities. Personally I only trade what I see to be high probabilities and disregard the rest.
Richard

 

[Splitlink]

So a false break upside should be immediately recognised at a selling price, because of the amount of selling around that given price. The only reason for the false break upside would be because of the buy order (stop) accumulation for traders who just coudn't help themselves before the larger sell off event?

John Piper explained in his "The Way to Trade" that he entered a trade where his RS line had been penetrated no more than twice. Actually, he was using Market Profile, which is the same thing but, as with all books, rarely is anything fully explained.

He didn't explain how far back in time those previous RS line penetrations went back.

So what we are expected to do is have a buy stop just above the line. Stevespray used this argument, too. He said that where, if you were long, you would be getting out you should, actually, hold on longer because the price, usually reversed, even if if only meant reducing your loss and selling at a better price. However, if you were an optimist, you would would have entered and would be holding, wouldn't you?

I'm just thinking to myself here, nothing too concrete but, sometimes, on these boards ideas clarify.

Split

 

[Paul71]

Paul71,
I can only speak about US shares as trading them has been my living for many years. Although many of the principles apply to other instruments I only feel comfortable talking about what I really know and trade myself.
If you watch a share trade, how buying and selling pressures ebb and flow, how different players including market makers behave you start to develop a sense of what is happening. There are other, simpler and easier times, when market maker behaviour is obvious. Now how market maker orders are worked is a different matter and is related to other factors like vwap and institutional orders. For example, there might be instructions to buy at a certain average price and the MM might try and push the price down in order to buy at a lower level.

You ask why traders have losing trades. There are scores of reasons including lack of knowledge and understanding, personal trading weakness based on fear and greed, not trading a successful plan and so many others.

There are also the unknowables, the Black and Grey Swan events as well as the mundane everyday things like a MM deciding to halt a fall in price by buying at a certain level. Also MMs are susceptible to the buying and selling pressures in the market and will usually act accordingly and flexibly. If for example there is a great deal of buying and a MM is selling he can decide at any moment to pull his orders whether they are real or not or head fakes and let the price rise and sell into higher prices.
No simple answers I'm afraid, but the main thing is this is a probability business and there are no certainties only probabilities. Personally I only trade what I see to be high probabilities and disregard the rest.
Richard

Thanks Richard, for the advice and insight.

Good trading.

 

[Paul71]

John Piper explained in his "The Way to Trade" that he entered a trade where his RS line had been penetrated no more than twice. Actually, he was using Market Profile, which is the same thing but, as with all books, rarely is anything fully explained.

He didn't explain how far back in time those previous RS line penetrations went back.

So what we are expected to do is have a buy stop just above the line. Stevespray used this argument, too. He said that where, if you were long, you would be getting out you should, actually, hold on longer because the price, usually reversed, even if if only meant reducing your loss and selling at a better price. However, if you were an optimist, you would would have entered and would be holding, wouldn't you?

I'm just thinking to myself here, nothing too concrete but, sometimes, on these boards ideas clarify.

Split

I see what you are saying, Split. Cheers.

 

[Mathemagician]

I'll offer a rather simplistic view on this, being a simple person. If markets are random then the probability of an instrument going up or down is equal, and the average return is zero for any combination of stop and target (lets not consider commissions or spread). At one end of the spectrum we have the trader with many small winning trades offset by the occassional large loss, and at the other end of the spectrum traders with a small number of large wins eroded by many small losses. I would however argue that even in a completely random market, stops could probably be improved over an arbitarily selected value, just by using techniques a simple as maximum adverse execution

By definition, stop placement cannot be adjusted to create an edge in a completely random market. All that does is adjust the win/loss ratio, and the win percentage adjusts itself to ensure that your expected return remains zero. That is what a completely random market is!

Also note, that there is no difference (other than a pretty picture) between MAE/MFE and optimizing stops/targets.

The situation becomes a little more complex if the probability of growth or decline in an instuments value is not equal, due to non random markets, and market participants having either a positive, or indeed negative edge.

Sticking with the simple approach, basic maths suggests that the trader with the negative edge (or trader with no edge subject to paying a spread or commission) optimises his strategy by employing tight stops to limit losses, it could also be argued that the trader with a positive edge optimises his strategy by use of wider stops, although its not an argument I'd make personally.

The problem with all this for the new trader is determining the definition of "tight" and "wide" with respect to his or her chosen timeframe, strategy, and market conditions, and unfortunately there is no one size fits all solution. The optimum stop for a momentum strategy isnt the same as the optimum stop for a trend re entry strategy, and the only way anyone's going to "optimise" their stops is either by analysis of historical data, or through trial and error gained by experience.

The trader with a negative edge optimizes his approach by not trading at all (though that never stopped anyone)!

You are correct that there is no one-size-fits-all solution, and there are even techniques for which stops are completely inappropriate. This is a very personal matter (almost religious for some) and likely to generate much discussion, hopefully not too heated...

jj

 

[Paul71]

How is an 'edge' defined or recognised? Surely the 'edge' is inherent within the market, but a traders inabilty to recognise this 'edge' is the traders downfall?

 

[Paul71]

What is the definative stop?

I would hazard a guess that there is no such thing. Why?

Because if there were such a thing as a 'definative stop', there would be no need for it.

 

[Paul71]

What is the definative stop?

I would hazard a guess that there is no such thing. Why?

Because if there were such a thing as a 'definative stop', there would be no need for it.

Apologies for quoting myself, but...

Should the 'definative entry' not determine the 'definative stop'? So....

Accuracy is formed through market recognition/understanding....

Therefore....

The perfect entry equals no stop.....!





I'll get my coat.....

 

[Paul71]

What is the perfect signal, for the perfect entry?


Answer this question, and you are 'half way' to knowing the 'ultimate' trade. I say 'half way', this is because you should have a 'positive' expectancy about the next tick......?

But what about the 'bid' and 'ask' price?

How is perfection possible, when the price that you can take is split?

 

[TheBramble]

LIf only the market walked straight rather than having the propensity to stagger about like a drunk sailor then all would be pretty plain sailing. My hat is doffed to those of you with the skill to sort out the sober revellers from the tipsy and drunk as they burst out through the pub door and just follow them home at a respectful distance. Unfortunately I tend to follow many a tipsy fellow who often staggers about getting his bearings as the fresh air bites or, even when he starts off confidently in the right direction, still staggers back to recover his forgotten fags or something.

Still worse, when he's well on the way then makes a major diversion for a pee or to find a less windy place to light that fag. Watching him I'm apt to conclude he'll never make it home and abandon him, only to find him comfortably tucked up in bed a few hours later whilst I'm still out in the rain following another drunk.

Look Jon, I’ve got the drinking under control now, honest. It’s no longer that much of a problem. Most nights anyway…Anyway I’m glad it was you and that there really was someone following me. I had been wondering recently if my paranoia was wearing off and I was simply now being stalked by those same voices that used to be inside my head.

I like your metaphor and like most good metaphors, they make more digestible to our Unconscious that which if presented to the critical conscious mind would be ignored or remain unrecognised and never get sufficiently symbolised (verb) into a form useful to where the real work gets done.

Having said that, whatever that was, drunks do have a propensity to carry out a fairly narrow range of actions and functions. And end up is comparatively predictable places. It’s when they sober up and start acting illogically you need to worry.