Help with Stops

[Bam-Bam 10]

I have been trading for a number of years with a limited amount of success. One problem that I have been unable to solve is that the market is incredibly consistent at taking out my stops on spikes against me before moving in the direction of my trade. As a result, I get stopped out of many positions that would have otherwise been profitable.

 

This consistently occurs with any instrument I have tried to trade, either long or short. For a year or so, I decided that the market was out to get me personally. I've outgrown that bit of narcissism, yet the problem still remains.

 

I've tried loosening my stops a bit. The spikes that take me out only grow accordingly. I've tried--sad to admit--trading without stops. Then, the moves against me continue against me rather than being spikes. I've tried using a set percentage as a stop. I've tried being on the trade side of Support and Resistance. I've tried being on the opposite side of Support and Resistance. I've tried alot of approaches, none of which seem to work.

 

Please note the attached chart as an example. It is a chart of the morning session of ES for Oct 23, 07. The posted chart has 1-minute bars to show that the spike that hit my stop was the very top of the move against me. I entered the trade based on a consolidation on a 233 tick chart.

 

1. ES shorted based on pennant consolidation

2. Stop placed 0.25 above 0.5 Resistance Level

3. Stop hit on highest spike of retracement for loss

4. Trade re-entered @ 1520.25 for nice gain

 

Any recommendations y'all can offer would be greatly appreciated.

 

Thank you,

Bam-Bam

_______________

 

* Not a newbie, I just trade like one.

[MC 10]

A few things I notice are...

 

The volume on the bar you got stopped out on while it was testing a mid-pivot was really low...Good chance the market won't be breaking that level on no volume/no demand.

 

The entry maybe should have been closer to the pivot level and/or the stop should have been a touch higher above the pivot.

 

I trade like a noob and am noob cause my emotions aren't where they need to be yet...but I do believe I will get there in due time. I'm a year into the market so I have time to lose my a$$ and learn. :o

 

Nice trade on the 2nd shot it seems though, so congrats on that.

[BlowFish 10]

There is only one answer to your dilemma. That is don't use stops! I know that is absolute heresy to some but it doesn't mean you don't stop out loosing positions. Actually a useful paradigm shift can come out of this. You use your tools to tell you whether things are playing out as anticipated and if they are not you close or reverse. People seem to put all their effort and levels of sophistication into there entries and use really crude tools and concepts for exits.

 

What might be a bit less radical and so more use to you is use a volatility based stop (ATR or chandelier springs to mind).

 

Finally you could look at winning setups and maximum adverse excursions you usually get a sweet spot (or two) where to increase your winners a small amount you have to widen your stops considerably.

 

Final thought, if you do use fixed stops (either based on market structure, a point amount or some sort of technical like ATR) they will take you out of good positions as well as bad ones. Thats the price you pay for having protection.

 

Seems to me its far from a newbie question!

 

Cheers.

[MrPaul 10]

My recommendation would be to never EVER place a stop above a non market generated pivot level. Projected Support and resistance like R1 and S2 are just that, projected.

 

Until a market CREATES a previous swing high/low it doesn't take much effort (money) for the level to be touched.

 

I highlighted in blue where a more proper stop could have been placed. In red are others throughout the day if you were trading to the downside.

 

Professional operators will not put capital to work unless they see an opportunity or have an objective to fulfill, keep this is mind when looking for places to put stops.

 

Stops places a couple ticks above/below a prior swing high or low, above a consolidation area or just below.above a retracement are ideal.

 

In my opinion stops placed above below projected support or resistance such as pivot calculations, fibbonacci levels, market profile value areas, etc. etc. are less than ideal.

[ranj 10]

Bam-Bam,

 

Here is a link to good webinar on stop placement.

http://www.cbot.com/cbot/pub/cont_detail/0,3206,1084+42256,00.html

 

I would start a stop only analysis journal, and examine about 30 trades or so.

It would go something like this.

 

Chart

Direction

Enter because

Stop placed

Stop option 1 (pivot high)

Stop option 2 (bar high)

Stop option 3 (Last WRB closing lower, high)

 

Then look at the percent of times that each stop was hit.

Trading is about discovering who you are and studing yourself as you participate in the market.

 

Good Luck

Rajiv

[BlowFish 10]

One thing with stops based on market structure is you often get a 'poke' above or below the swing high/swing low as the market tests or backs and fills. Seems to me waiting for a close above a market high/low to take you out would keep you in a lot more trades. I wonder if anyone uses that particular approach?

[TinGull 10]

i totally second MrPauls comment. Also, one thing Paul had taught me...stops on close. Wait until the candle closes to see if it closes beyond your stop so that way you don't get squeezed out on it. but, stops based on market generated info is the way to go, not projected info.

[BlowFish 10]

Is a way to go....and a pretty good unambiguous way. I'd not go as far as saying its the way

 

Let me introduce another (particularly fine imo) possibility is market geometry - for example if you are buying an up sloping trend channel you would stop on a close below the the main up sloping trend line(1-3 line). The beauty of this is that it provides a handy target too (2-4 line). This is still market generated (as it uses two successive swing lows) and projected (as its a sloping line drawn through these).

 

As an aside I would highly recommend Tim Morges (no affliation) commentaries on his stop placement and movement (hes over at medianline.com) I find them absolutely fascinating I'm not sure if the archives are still available but worth seeking out. I have them all printed out and use to read and re-read them. They just seemed very accessible to me, it was like reading a good novel as he would talk a trade through from start to finish. I'm a little loath to make recommendations but its quality stuff.

 

He uses market swings for initial stops and trailing, lines for targets (on the whole). It is the trailing that is particularly interesting as he talks through his thought process' as the trade develops. When to move a stop to a newly formed swing high swing low, comments on price action that he's noticing etc.

 

Trade management is certainly one of the keys to this whole game and personally I can buy in to the exits (stops and targets) are more important than entries point of view.

 

Cheers.

[BlowFish 10]

Always worth having an hard 'emergency' stop well outside the market. Protection against things like equipment failure or, god forbid, some sort of personal catastrophe. Thats a different matter of course.

[Bam-Bam 10]

Many thanks for all the recommendations. My first step is to follow Ranj's suggestions and record why I set a particular stop and if it was successful. I am also going back through my trade records to record the maximum incursion against my positions, both successful and unsuccessful.

 

A very good point for me is to trigger a stop only if the bar closes above my stop level. That would have saved me on a good many trades. I can't remember how many times I've had one trade go through that kicks my stop before the market moves back toward my entry.

 

Thanks again,

 

Bam-Bam

[cable 10]

I think your stops are a bit too tight. Cut the percentage you're risking on each trade and that will let you have a wider stop.

[Bam-Bam 10]

Hi Cable,

 

Thanks for the input. On the one hand I agree that the stop in question may have been a little tight. On the other hand, I had good rationale for selecting it. It was based on 1) market generated resistance-- pivot level, and 2) ~2.00 pt. "standard" hard stop on ES--it was actually 1.75 pt.

 

In the past, I've tried loosening my stops. Then I am usually taken out on larger spikes that reverse as soon as my stop kicks, so the only benefit I receive from larger stops are usually larger loses that are proportionally more frustrating.

 

Blowfish's recommendation to use a volatility based method makes a lot of sense to me. That way one can customize the stop level to the setup and timeframe that one is trading based on the ATR.

 

In my case, risk management in the sense of stop placement has been more detrimental to my trading success than entry decisions. It's a matter of trying to do the right thing but just not doing it right.

 

 

Thank you for the input,

 

Bam-Bam

 

* Not a newbie, I just trade like one.

[ItalianSharp 10]

I think you should place your stops MANY ticks above/below the prior swing point.

 

There are different scenarios that may occur:

 

1) The swing point isn't breached and your position is safe

 

2) Stop running occurs and your stop should be safe unless it's placed 1-2 ticks above/below the swing point.

 

3) Your stop is hit and that means the breakout might be for real.

 

I agree that waiting for the interval to close might be the better option...but we just never know how far it'll close...that's the problem.

 

In extremely volatile days, waiting for the close may turn out very costly.