Index Futures Risk Management

[bathrobe 10]

I trade only Index futures, and mostly the ES.

 

I thought it would be a good idea to discuss trade management (given recent price swings and volatility). On a trade where I am looking for more points (greater than 3 points) I do not use a hard stop, I exit when I believe I am wrong. I am comfortable trading this way now but it took a large amount of time to get there. When I am scalping (1.5 points or less) I use a fixed stop of 1 point and take off 80% of position at 1 point-and let the rest run.

 

I have shared this and started the thread to hear how others manage risk which is most important (IMO) to becoming profitable.

 

I thought this could maybe become a place where ideas could be shared and learned to those who are newer, in retrospect this was one of the most important keys to me becoming profitable.

 

I must stress that most traders should use hard stops

[Tams 20]

the market is dynamic,

so should the stop.

[bathrobe 10]

the market is dynamic,

so should the stop.

 

 

Yes, but I really don't think most retail traders can use (or know how to calculate or use) dynamic stops.

 

Most discussions I read regarding stops revolves around a 1:1 R/R ratio, some are more favorable but this is why I started the thread.

[electroniclocal 10]

For me, keeping my drop dead stop out of the way is most important. I exit when the market tells me to. As far as Risk v Reward - it's a myth. The RISK part can be defined but the REWARD is unknown and depends on what the market gives you and what it does between entry and when it gets there. Two traders will exit the same trade differently. So much for calculating REWARD in advance unless you are scalping for smaller amounts.

[bathrobe 10]

REWARD is unknown

 

I completely agree, but most retail traders enter with a 1 point stop and 1 point target or 1:3, 1:2, and never look at what the market is telling them.

[SIUYA 11]

this should be a good thread.

I have come to a number of conclusions in agreement with the previous posters on hard stops - -

1) you are new to trading and should have them in place to understand their importance, and to help you get used to taking them. Ideally when you first start it does not matter too much where you place them - this comes with time, practice and personal preferences

2) they are also good to use as a worst case - "stop my account from taking too much damage" - this should be used by every trader even old hands.

3) otherwise hard stops that are close to the market but not so close are not really helpful - these are the ones whereby you get stopped out by a tick and the market then goes the right way. Better to either have a very close stop, or really watch what occurs in the market.

4) too often these stops are used as a crutch, whereby traders become lazy and lean on them. This distracts from what is relevant, and that is the question - "is the market doing what I thought it would?" if not do I need to be there.....I am already wrong, so get out, dont wait for the stop..... this questioning also should help determine the type of stop you should be applying.

5) The reward element should also be asked in a similar fashion. Having a fixed R:R is nice but potentially lazy, and as mentioned is an interesting historical statistic. Otherwise the reward should be dependent on the market and the setup and be independent of the risk. (While the Dr Tharp books are interesting I am starting to think they do more harm than good in some respects as they distract from the real issue of the actual trade management)

6) context (watching the market and reacting to it - applying appropriate setups and triggers) and consistency is far more important. The measuring or R:R is really only a historical measurement of these two.

[brownsfan019 17]

Every trade I place has a hard stop - ie it's on the DOM and sitting there as a market order ready to fire when I am wrong.

 

I do believe in risk-reward. If you risk 5 pts to make 1 pt, you will eventually go broke I have no doubt.

 

I do believe that your stops should be based on market conditions/formations whatever you want to call it - meaning that a random 1 pt stop does not make sense to me. The stop should go where if it triggers, it means you were wrong which to me means placing it out of the possible 'chop' stuff. As a reversal trader, that means my stops are usually just outside the HOD or LOD.

 

Hard stops force me to exit a losing trade and allows me to move on to the next trade w/o hesitation. A trade does not become an all day hope, multi-day prayer or my next investment. Simply I am not able to get emotionally attached to a trade or think that I have outsmarted the market.

[macdfx 10]

Another item that traders should check is whether their stops are placed natively on the exchange, or held on the brokers server (or even worst, on your own platform) for queuing.

 

For instance, that hard stop with OEC isn't actually in the market, on the exchange, but resides instead on OEC servers for execution upon being hit.

 

Good luck with that in a fast moving market.

[brownsfan019 17]

Another item that traders should check is whether their stops are placed natively on the exchange, or held on the brokers server (or even worst, on your own platform) for queuing.

 

For instance, that hard stop with OEC isn't actually in the market, on the exchange, but actually on OEC servers.

 

And never had 1 problem with it.

 

Good to see you are back to bashing OEC macd, been awhile. Do you and Tams take turns?

[brownsfan019 17]

 

Good luck with that in a fast moving market.

 

Yep, never an issue here.

 

But good try.

 

[Tams 20]

a good stop will protect you from a wrong entry,

but will not be triggered by noise.

Edited August 24, 2010 by Tams

[natedredd10 10]

When I am scalping (1.5 points or less) I use a fixed stop of 1 point and take off 80% of position at 1 point-and let the rest run.

 

Kind of meaningless without knowing the capital you are swinging...Assuming though you are trading 5 cars to take off 4/80% to leave a contract to run..i think this is -EV because you are not juicing big winners with taking all off at 1 point...Like your trying to build this steady equity curve by deleting the variance of losing vs random huge outlier wins(outlier wins that are juiced on 2 or 3 cars)....That seems to me to be a great strategy to make a break even equity curve.

Edited August 24, 2010 by natedredd10

[brownsfan019 17]

This thread is a great example of what is going on around here... I post about the topic, no mention of OEC or anything yet MACD wants to chime in and take it off topic.

 

 

Just another example of a thread that could be a good one to discuss but the personal attacks continue.

[brownsfan019 17]

Another item that traders should check is whether their stops are placed natively on the exchange, or held on the brokers server (or even worst, on your own platform) for queuing.

 

For instance, that hard stop with OEC isn't actually in the market, on the exchange, but resides instead on OEC servers for execution upon being hit.

 

Good luck with that in a fast moving market.

 

Good example of why people that don't use the software should really just keep their comments to something they know - here's how OEC handles stops. Not quite the same picture you are attempting to paint here.

 

Next time maybe take the time to verify your information being presented here instead of just random guessing.

[bathrobe 10]

Kind of meaningless without knowing the capital you are swinging...Assuming though you are trading 5 cars to take off 4/80% to leave a contract to run..i think this is -EV because you are not juicing big winners with taking all off at 1 point...Like your trying to build this steady equity curve by deleting the variance of losing vs random huge outlier wins(outlier wins that are juiced on 2 or 3 cars)....That seems to me to be a great strategy to make a break even equity curve.

 

I momentum scalp around news releases at levels. I should have included that this method is far better than 50% winners, making it profitable for me. I leave the 20% on with a stop loss at the theoretical average +1 tick

[MadMarketScientist 11]

I've removed a few posts since there was unnecessary name calling -- keep it on topic please. Thanks!

 

MMS