Stops Yes or No?

[atrader123 10]

Fibtrade resistance retrace is a good tactic for low risk trade. Building on that, one way I would play that example is

(a) Make an anticipation entry on retrace

(b) Automatic tight fixed hard stop like ~6 ticks on ES/6E (typically 1 bar length)

© Aggressively tighten stop to break even in next couple of bars or get out if it stalls.

 

Many people wait for confirmation bar and enter above it. My preference is to be part of confirmation bar. Similarly many people 1st identify entry and then determine stop. My preference is to 1st identify a stop point and enter only if price comes within hard stop range. Basic idea is to have many break even trades, few losses of 1-2 ticks/contract and few runners of 3+ points. Obviously the numbers need to be adjusted based on the timeframe, instrument and volatility.

 

Anyway the example is more to describe the way I understand and typically apply the age old rule "cut losses short and let profits run". There is no one correct way. I am curious to see how other traders apply this rule in their trading.

 

Good Luck

[CType 10]

Thanks everyone for you input, and suggestions.

 

I'm paper trading now with two similar pullback systems. One, from the book I mentioned in this thread, is to wait for 3 to 5 consecutive down days and enter went the price moves above the lowest high. The other is from an article in 'Stocks and Commodities' magazine. Also a pullback, but waiting until the market opens above the lowest high. They called this 'Getting Clear'. I plan on being out of the trade no later than the fifth day. I read somewhere that if your trade immediately goes against you to get out, and not wait for the stop. So I could be out on the first or second day. I probably won't do that with the simulations, but will watch how those work out.

 

As for the stops, it seems to me now that it wouldn't matter if you placed the stop with your broker, or used a manual stop. Assuming unwavering discipline (ya right) you will be out of the trade either way. It's not likely you will be the only one with at stop at that level no matter where you put it. May as well place the initial stop when I enter the trade. I'll probably widen it from 1.5 to 2 X ATR and take a smaller position.

 

Thanks again everyone, you have all been very helpful.

 

B

[86834 10]

It all depends on your trading style. As you mentioned in your op, most of the time, if you just buy support or sell resistence then the market will just smash through you and stop you out. If you're a swing trader using a large stop and trying to capture the bigger move then this isn't so much of an issue. However, if you're a day trader, then you need to understand how day trading works and where the key trading opportunities are. The majoirty of the market is always looking for a trend and is looking to jump on the back of anything that moves hoping for a break out, which is why you see the trading activity that you do around s/r levels as you mentioned.

 

I've posted this video before on these forums, but it's a great example of how the market just smashes a resistance level at 1181 in ES on the 18th of October. Anyone selling resistance there as a day trader, most likely got stopped out or took a heck of a lot of heat before the sell off. If you're day trading, then you need to learn these concepts to profit consistently.

 

[ame=http://www.youtube.com/watch?v=AAc1vJREAlQ]YouTube - Day Trading ES 18th October.avi[/ame]

 

Something that I think has highlighed this recently is all this stuff on the internet saying that day trading is dead. The reason why people are writing all of this is because the market isn't trending, and as a one trick pony, they don't know what to do. The days of massive volatility made it easier for less talented traders to make a living. The reason being is that they could have 3 losers in a row for 2 points each, then have a big 10-20pt trade that knocks them into profit, thus not requiring massive skill in my opinion. However, now that the markets have settled down, now more than ever, you need to put the time in the learn the right skills. It's not all about hollywood trades and big trends. An example would be when many people look at European markets, they think they're dead as they don't have monster moves or trends like the emini's for example. However, people obviosuly make money trading them by understanding the flow of orders coming into the market.

[SIUYA 11]

86834 - you make some good points, while intraday trend trading via breakouts may be having a tough time at the moment, longer term trend traders just recently are having a pretty good time of it. One fund I have invested in was up 7.82% for October.

So clearly there are trends.

I think the point that there are different types of traders, styles and methods should not be lost in the discussion. While everything will have its own good times and bad times.

With regards this thread......you need to match stops with the system or style to be adopted, and then IMHO stops dont necessarily need to be as systemised as many might think.

 

I for one will always prefer to adopt a system that makes me easy money over hard money, even if it supposedly takes no real skill.

[atrader123 10]

CType,

Sounds good. Some times when I read, even if I already knew the concept it triggers some small idea I can use. In that spirit, I hope you will find following observations useful.

 

(a) Assume it will take at least several months and may be 1000-2000 trades (if day trading) just to break even consistently. Realizing this will help you not undermine the progress you make and save you from lot of frustration or giving up. Many times especially in the early stages it may happen you are actually making progress but just PnL results not reflecting them.

 

(b) I feel what majority don't do or believe often works in trading. IMO most aspiring traders are smart, committed, hardworking and try to give their best. But on downside, try to master multiple setups at once or impatient and not stick long enough with a setup to truly make it theirs.

 

© Markets are there to make money, not to pay tuition fee. Don't hurry to trade live or undermine power of learning on simulator. Trade on simulator exactly as you would do in live trading. Not only it will teach for free but also help to ingrain discipline & consistency enough that you won't even think about it when you trade live.

 

(d) Sometimes it helps to identify and make progress in stages instead of in PnL especially for struggling traders. Stages could be : Struggling -> Trader with plan -> Trader with plan & discipline & consistency -> Trader profitable before costs -> Trader profitable after costs -> Live trader -> ...

 

(e) It is difficult to believe especially when trader is still working their way but IMO fitness, balance and quality of life outside trading will have as much (if not more) impact on trading results as technique in long term.

 

I wish you good luck in your trading.

[zdo 20]

Maybe the OP already has the ‘answers’ he was after, but I’ll post this for other noobs

 

re: topic question “Stops Yes or No” A very few systems are amenable to no stops at all. All the rest need loss management.

 

re “Ive been searching the forum for a difinitive answer, and the fact that I can't find one is probably all the answer I need” Stops are highly system dependent. Any ‘personal preference’ answers given without any references to the systems or even the type of system the posters are using with that stop style will not help you at all in the long run.

 

For example: The range/volatility type stops (deviations, LeBeau, etc, etc) – nothing ‘wrong’ with them at all, but there are a whole host of system types for which they are sub optimal. Generalizations simply have no place in stop placement.

 

Another point: OP seems to have concluded not to be concerned with ‘professionals’ and ‘stop running’ , etc. But, situationally, stop running does occur, and some systems absolutely must include those situations in their stop schema and placements.

 

Basically, discussing stops in absence of the context of an individual system is a non productive mind game… ie, the fact that you can't find one is definitely not all the answer you need…

 

In my experience less than 10% actually understand what I just said. Even fewer will be willing to persist in the work and multiple tests required to find the best stop style and levels for their system(s). Most continue using the style that ‘seems to work’ for them – never realizing how far off they are until it’s too late…hth

[Ericthetrader 10]

Stops, Yes, If you don't use it, it will kill you financially....

[MadMarketScientist 11]

I'll just pass along my experience.

 

I have run into and talked to a lot more busted traders who did not use stops, who could not describe their stop/risk strategy, who had no idea when to exit -- even some who were masters of the entry.

 

I have never run into a highly successful trader without a stop strategy.

 

MMS