Article The Evolution of a Trader

s-a

Active member
111 0
dbphoenix said:
Cutting your losses short has nothing to do with how "tight" they are since an inappropriate stop can virtually guarantee a loss. The width of the stop depends on the setup used. To use exactly the same stop in every case is unlikely to achieve the desired result. A more productive exercise is to determine in advance just exactly what it is that the market has to do to prove you right and exactly what it is that the market has to do to prove you wrong. It is this exercise to which "cut your losses short" refers, plus, of course, the act of actually following through on the cutting.
Thanks Db. After 2 years of trading, I have only recently learned this. I wish I would have read it when I started trading though - where was your book when I started??? :)

What you say makes good sense. A quick outline of what I very briefly described above though. I am putting a wide stop as the most I am willing to risk, however, as time progresses and successive prints give me more information I often end up getting out before my stop is hit. If for a loss, it is typically quite small. But, because the stop gives it room I am subject to less noise which is key .

Thanks for your comments Db, only wish I had read them when I first started trading.

HG
 

Ingot54

Well-known member
403 62
This article highlights what every novice needs to strive after - management of the trade, and management of the self.
 

Splitlink

Legendary member
10,850 1,232
dbphoenix said:
Cutting your losses short has nothing to do with how "tight" they are since an inappropriate stop can virtually guarantee a loss. The width of the stop depends on the setup used. To use exactly the same stop in every case is unlikely to achieve the desired result. A more productive exercise is to determine in advance just exactly what it is that the market has to do to prove you right and exactly what it is that the market has to do to prove you wrong. It is this exercise to which "cut your losses short" refers, plus, of course, the act of actually following through on the cutting.
I don't use close stops because I have an idea that, wellfounded, I believe, on personal experience) they are vulnerable to being spiked out. Since I am a part time trader who cannot trade in the afternoon I was, quite often, exasperated to see my trade spiked out with the EOD up on the previous day.

There is a risk and I am trying to figure out how to get around it. I doubt that distant stops are of much use in a panic. I was reading one poster's experiences of this, on another site, and the price just sailed through his stop and the price he got was much lower.If you use a guaranteed stop there is a healthy price to pay which, it you are trading frequently I find unacceptable.

So, until something better comes along, no stops for me. Oh, yes, I trade in shares, index and other trading may well need a different approach.

Split
 

trendie

Legendary member
6,233 1,007
Splitlink,

I had the same problem re: tight stops.
I have now found that using a stop to trigger an "alert" is better.
Take for example, simplistically, SMAs. I have found the FIRST hit of the MA by a trailing stop should be seen as a WARNING to monitor the trade, and ready oneself for an exit at a better price.

Have you tried using a stop as a warning to get out rather than a hard and fast rule ?
( by all means use FAR hard-stops )
You may find that you get out at better prices.
( Note: Alan Farley ( Master Swing Trader ) discusses spikes. ))

merely a thought.
 

Splitlink

Legendary member
10,850 1,232
trendie said:
Splitlink,

I had the same problem re: tight stops.
I have now found that using a stop to trigger an "alert" is better.
Take for example, simplistically, SMAs. I have found the FIRST hit of the MA by a trailing stop should be seen as a WARNING to monitor the trade, and ready oneself for an exit at a better price.

Have you tried using a stop as a warning to get out rather than a hard and fast rule ?
( by all means use FAR hard-stops )
You may find that you get out at better prices.
( Note: Alan Farley ( Master Swing Trader ) discusses spikes. ))

merely a thought.
I used them when I was intraday trading but I prefer longer term now and have stopped the chart service I had. I am trading better without stops than with them. My opinion is that stops work very well to the financial advantage of the moneymakers.

Will have a look at Farley, thanks.

Split
 

SOCRATES

Veteren member
4,966 134
Split, you are correct in what you say that stops work very well to the financial advantage of the moneymakers.

The object of the excercise is to backwards engineer the financial advantage to fhe money makers, back to the minimisation of risk to the risk takers.

Invairalbly the correct management of stops is a delicate matter because there are two main considerations.

The first is the choice of a defendable entry point. This means that when going long in a rising market you should enter at a time and price level at which your entry makes you a strong holder and not a weak holder.

Depending upon your entry point you can then clearly assess where the stop should be placed.

Furthermore these two considerations depend upon timing.

The same applies when going short in a falling market.
 

Splitlink

Legendary member
10,850 1,232
SOCRATES said:
Depending upon your entry point you can then clearly assess where the stop should be placed.

Furthermore these two considerations depend upon timing.

The same applies when going short in a falling market.
So you work out your stops first, then the entry point depends on the amount of risk that you are prepared to take? The problem is to figure out where the rest of us traders are going to put the stops and place yours below them, isn't it? Your comment on entering with a strong position is interesting. Frankly, I have been messing about all the week with a share that has done practically nothing, so my timing was all to hell on that one.

Split
 

SOCRATES

Veteren member
4,966 134
The whole outcome revolves around timing. You c an be right about a particular direction, but go in too early or too late. Then the use of time is very important. The choice of entry point is very important because you do not want to be fundamentally right, but not succeed. The stop has to be calculated in advance, and it must be as tight as possible, irrespective of what others may be doing. They are not in control of what you are doing, you are. If your timing is correct and your view of the direction is correct and your entry point is correctly chosen it is most unlikely that your stop will be hit. This is because the outcome you expect is the one you get, immediately.
 

Splitlink

Legendary member
10,850 1,232
Socrates,

I haven't forgotten you, just working on what you said.

Thanks

Split
 

vaxxy

Junior member
22 0
Enjoyed this artcle a lot, however this line troubled me:

"There is no point having a trading strategy if we can’t trade and no novice trader knows how to trade."

It's probably not the way it was supposed to be taken but it does sound a bit like he's saying a novice shouldn't have any kind of strategy until he he is no longer a novice. Surely a novice must have some some kind of strategy before trading.

I can, however, see the point of the article and thought it was a good read.

Scott.
 

Anonymous

Established member
604 3
My reference to the article would be to Page: 2
In summary:
Don't waste money on systems, they have very little value in themselves.
Get help
a novice trader could seek out a mentor
The
part then brings us to another question: will successful traders give advice?

In the learning process if the student is unlucky to go to the wrong teacher or mix with the wrong students who tell the wrong things, I wonder how long he will take to learn the right thing? If the novice trader learns from one who doesn't really know how to trade, assuming the novice trader doesn't go bankrupt before learning the skill to make consistent profits, it may take a long time to learn the skill. But, will successful traders give advice? If he lives in a competitive world where there cannot be 2 double firsts in the same mountain, what then?
 

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