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Easy to use and very helpful in seeing where should be our stop and profit target - if it's real - by looking at the chart. You can also setup you past trading effectiveness to calculate the Profit Factor you would like to achieve. Your comments and questions are very welcome! Works with Tradestation 9.0+. If you need for an earlier version, please contact us. LID - MONEY MANAGEMENT.ELD LiD - MONEY MANAGEMENT 9.0.zip

Bad Fills can be frustrating for traders as they are often executed as a worse price than expected (too high in buy positions or too low for sell positions). There are generally two situations where this might occur. First is during times of excessive market volatility. Low liquidity levels can make it difficult for brokers to execute trades at specific prices. Other instances are seen when broker platform reliability is questionable. This situation is more avoidable, however, as long as a reputable broker is used.

One of my systems has historically returned, via hypothetical backtest, around 60%-80% per year (for the past 10 years) when tested with a wide stop loss. The return jumps into the 100%-120% annual range when the system forgoes the stop completely. A 10k account will grow to over 2.5 million dollars in just 8 years with a 100% annual compounded return! These results lead to some interesting questions. First, we always read that past performance is not indicative of future performance. Obviously, various agencies and regulatory authorities require such disclaimers. Yet, anyone who trades a system believes that past performance is a good indication of future returns. I doubt there is any trader who doesn’t believe that. Of course, traders understand that such extrapolations are often wrong. Yet, I don’t know anyone who would trade if they didn’t on some level believe that historical performance had value. Even if its not a backtest and someone claims that the performance in a future test is important, the implication is the same which is that eventually your past performance has some value. A reasonable question is that if we rely on the historical results to guide our trading and the system performs better without a stop then what is the justification for using a stop loss. Personally, I do like the idea of the stop loss and I understand that one bad trade could wipe out a highly leveraged system as I describe. In fact, the variation that I offer has such a stop loss and stop loss guidance for this very reason. One reason that’s the case is that its my personal preference, secondly the system with the stop still produces a strong return, and last but not least is that I do design systems, like any product, for a target audience. I know that my consumers would not accept a system without a stop loss. Yet, all those reasons aside there is a strong logic that if we accept the historical results as being indicative of future returns, which we already have by virtue of using the historical returns in the first place, then without a rational basis we should trade the best returning system -- which in this case was the system that didn’t use any stop loss! I know that some will rush to judgment and assume that trading with very high leverage and no stop loss that one would be destined to blow up the account. However, the system I’m describing is a real system and was backtest over 10 to 12 years and the largest loss without a stop would have been around $2500 and there were probably no more then a couple losses that large out of hundreds of trades. It could also make sense to use a stop loss wider then any historical loss. Such a stop loss would both be unlikely to ever be hit and could provide much needed peace of mind and would, moreover, protect the majority of the account if a truly unusual deviation were to occur. I think part of the reason we like stop losses is because we don’t really want to accept the risk inherent in trading. Perhaps more to the point, we believe we can time the system or we’ll get lucky and avoid the historical losses. As a discretionary trader, I do feel that it is possible sometimes to time systems. Yet, if we choose to rely on a statistical methodology, that is not introducing unknowns, then it is rather likely that the account will be completely exhausted or mostly exhausted by the time we could recognize that the system had failed. A different approach would be to consciously allocate the entire starting balance to the system with the intention of trading the system until failure or success. It is basically a bet the farm approach. The mindset has some advantages. One primary advantage is that such an approach is simply the act of consciously realizing and accepting the risk inherent in trying to achieve the desired returns. Following this logic, we would also see that using the stop loss wasn’t optimal and may choose rationally to trade without the stop with the full knowledge that single trade could wipe out the entire account. Mathematically, sense we are already extrapolating the past performance into the future, we can also extrapolate the returns and come up with a “valuation” for the system based on the historical performance. A system that returned 100% with a 10k starting balance would be worth, as described, approximately 2 million dollars with an 8 year horizon. We could even look at it like a single trade. In this case, it would represent a 200x potential return for the starting risk! There is a problem with the extrapolated returns though. Even accepting that it could make sense to risk a small nest egg on a high risk trading system: it is much harder to justify the risk required to meet the returns extrapolated. In other words, one would have to risk 100k to make 200k and 200k to make 500k and 500k to get to a million and a million to get to 2 million. At some level, the risk required to make more just simply doesn’t make sense. As such, the extrapolated return isn’t realistic and therefore we face that problem of valuation again. Remember, we had justified trading our 10k starting capital based on the valuation that the system would produce over 2 million dollars. Clearly, this thought experiment is missing a very critical element required for implementation. The missing element was first introduced to me from another trading associate and CTA, and that missing element is the systematic method of taking out profits as the account balance grows in value. This cash flow principle completely solves the problem conceptually and completes this idea. The extrapolated returns will, of course, be reduced but the overall theses becomes workable. In fact, there is certainly a possibility that the system could fail and take a complete account loss while the trader actually produced a net profit. If the system generates enough cash flow to “pay off” the initial investment before failure then one can walk away with a net profit even in the event of system failure. The method for this calculation is based on fractional position sizing and is outside the scope of this article. Completing the paradigm would involve trading multiple systems and treating each system like an individual trade. The stop loss would be the starting account value and each “trade” or system would offer a very high extrapolated return compared to the starting balance. In this paradigm, a total account loss doesn’t infer that one “failed” as a trader but merely the system failed. The reward to the risk taken was already accepted. It goes without saying that I would only even attempt this with systems that I had a very high confidence in because bad systems could easily result in a total loss. But, let's assume we start with 50k and 5 solid systems with 100% annual returns per system and an 8 year time horizon. We'll reduce the implied return to 1 million per system due to the anticipated withdrawals. The actual reduction depends on the rate that we withdrawal profits. Furthermore let's assume that every single system but a single one fails. The net result is still that we made 1 million dollars from a 50k starting investment and that doesn't even take into the very real possibility that some systems could have payed off the initial investment and even made some profits before failure! The net result is achieving nearly 50% annualized return with an 80% system failure rate! It is clear that having a plan to withdrawal and protect profits is the cornerstone that completes such an ambitious plan. The trader who wishes to execute such an ambitious methodology needs both the capital for at least a few seed systems and perhaps more importantly the wherewithal to execute the plan over many years. Notably, there is no requirement that the trader/system developer remain inactive and dormant over so many years. The more professional approach would be to invest some of the cash flow into new systems, update working systems, and adjust allocations based on performance and market conditions. -- Curtis http://themarketpredictor.com

The number one way new traders fail is in counting their trading profits, or the money that could be made on the trade before the trade is even placed. Pro traders know you should be focusing on how much they could lose on the trade. To succeed you must be able to accept the risks and apply money management techniques such as stop loss orders, max daily loss limits, and account draw down rules. Think Risk First, Then Reward When you focus on, and accept the risk of losing, the doorway to profits will open. A saying I use is, when in doubt, wait it out. If you’re in a position and are feeling anxious and want to get out early, it usually leads to taking profits too soon. Here are 3 ways you can limit the losses to keep more trading profits: 1. Set Hard Stop Loss Orders In order to limit downside risk, a stop loss must be placed on every trade. It is imperative to your long term success that you do this. There is no getting around losing trades, we all have them. The key is to keep those losers as small as possible, and give your winners a chance to take shape. Be quick to exit when the position is going against you, slow to exit when it’s going you way. Two crucial rules for stop loss orders Stops must be placed at the time of entry A stop can only be tightened, never widened 2. Establish a Max Daily Loss Limit To prevent the dreaded “blow up” of your account you must place a max daily loss limit on your account. Don’t just write it down on a post it. I recommend setting a hard loss limit with your broker to ensure this rule will be followed. When we are at our weakest is when our rules become the most important, yet the hardest to follow. Limit your max daily loss to no more than 5% of your account balance (and this is even a high number). Still, this ensures that you will live to trade another day and not lose everything on what is in some cases, one bad decision or mistake. 3. Adhere to Draw Down Rules Another way to limit your risk is to cease trading after 2 full stop outs on the day. If you have two stop outs, the market is telling you that it is not conducive to your setups that day and you need to stop trading. There are methods for scaling out of your positions in which you may sell half at a smaller profit target. If you get taken out of the remaining portion of your trade after this first target is hit I do not consider that a full stop out. Does Your P/L Statement Look Like This? Chances are your profit/loss statements are made up of a handful of average days, a few big winning days and a few big losing days. If you can eliminate the big loser the profits can emerge. Once you can successfully manage your losses your trading profits will follow. What other ways can you think of to limit losses?

Drawdown vs. Loss What's the difference? Is it possible to know the difference before your stop is hit? If you can tell the difference, how do you do it? When do you decide that it's really a loss, and not drawdown? Is it better not to worry about whether it's drawdown or a loss? Should you just set your stop loss, and that is all you need to do?

Hi i am writing a code in nijatrader when I setup the stop loss I can only have a fixed stop loss price for example 10 ticks. However, what I want my stop loss to be is 2 candles prior low. instead of a fixed stop loss. for example. Ninjatrade enters a Long trade the stop loss should be 2 candles prior low. this way the stop loss can be 5 ticks or 15 ticks. Does anyone know how to write that kind of stop loss code in ninjatrader . thank you for your time

I was actually making money swing/momentum trading - tho admittedly the market was very good in Sept which helped a lot. I was gaining much more than I was losing. I buy smallish lots (200 shares sometimes 300) and hold for anywhere from a day or two to a week or so. I always have a stop loss in place. Always. The past couple weeks, I've lost most of my gains of the past few months. My account is currently not much above where I started. I know that the whole market has been down - the international backlash against QE2, China's inflation problems, and now Ireland - but I don't know what I should do differently. Problem is, my stops (I allow for pretty good wiggle room - I usually set the stop about 8% below the purchase price) have been repeatedly hit, generating losses. (Sadly, after my stop is hit the price usually goes right back up.) Of course _when_ I buy is important - I look at stocastics to see when prices are likely at the peak or bottom so I can avoid buying just before the price starts to drop. That method used to work, maybe 70% of the time, but with everything down it's not working, except in hindsight. None of the stocks I've bought in the past week or so were much in the green ever, because everything started dropping, so when my stop is hit I lose, and that's happened several times lately. As soon as it became clear a couple days ago that we were heading for a 'correction,' I started selling what I had left and moving into cash so I'm less exposed. I'm OK so long as I can identify my mistakes and not keep making the same ones, but I just don't know what I should do differently in the future. Short of buying a crystal ball. Thanks for any input.

Hi, I'm just starting to learn Easy Language, yet am having problems with stop loss setting when testing strategies. Although the stop loss is set in the code, it seems it isn't always acted upon. Not sure what I'm doing wrong... any ideas most appreciated! Code sample: if Condition11 and Condition12 then begin Buy 1 contracts next bar at market ; SetProfitTarget(3000) ; SetStopLoss( 100); end; In the most recent test, the first trade closed $100.78 down, the second is $16,091 down and still open! Ideally I'd like to set a pip based stop loss (that works!), but it doesn't seem clear how to do this looking at the docs... Thanks!