ES frustration today

[keymoo 10]

Hi guys,

 

I had a frustrating experience today (Feb 12th 2007) on the ES. Price dropped through yesterday's low and I set up an offer to sell 1 tick below yesterday's low on a pullback. The market condition of the day was a sell off followed by some downward-biased chop. See chart attached time is EST.

 

 

 

My sell order was filled at 1436.75 and my target set at 6 ticks 1435.25 with my stop placed at 1438.25. For the next half an hour we chopped around so I wanted to get out as my prediction had not come true. In the book Phantom of the pits (http://www.futuresmag.com/cms/futures/website/phantom/a+little+history), the phantom recommends that you get out of losing trades ASAP. Put a time limit on them and if your position direction is not confirmed then get out. This is what I did for a 1 tick profit to cover commissions.

 

Now, the most frustrating part is that as soon as I exited my position price moved in my direction and hit my target within 4 minutes. I just needed to vent my frustration.

 

Should I have left my position as it was and just set it and forget it? Should I try and cut losses short by exiting positoins that don't move my way within 15/30/whatever minutes? Should I always let my stop get hit or exit before? I would appreciate some guidance.

 

Thanks!

keymoo

[TinGull 10]

Hey keymoo,

 

that does hurt I know. The way I look at a trade is...if it was a good trade, and I know that the trade has merit and that's why I put it on, then I'll leave it be. If the stop gets hit and I could have gotten out for less, then so be it. I'm not gonna sweat it out, because I know probabilities are in my favor.

 

Maybe it's just me, but that's how I do it.

[trader273 10]

Stops are there for a reason. Cutting a winner short out of fear is detrimental to the long run. The only time I know my trade is wrong is when my stop is hit. I know it sounds so simple, but in the heat of battle it can be hard.

 

That is why I try to keep in mind that this is a business and businesses have expenses.

[MrPaul 10]

If you are trading multiple contracts you could scale out half or 2/3 etc.

 

This allows you to cut your risk while still ensuring the potentiality of your original plan.

 

I've done that a couple times and been stopped on the last portion, and i've also had a trade run the way my plan was geared towards.

 

[Anonymous 11]

Stops are there for a reason. Cutting a winner short out of fear is detrimental to the long run. The only time I know my trade is wrong is when my stop is hit. I know it sounds so simple, but in the heat of battle it can be hard.

 

That is why I try to keep in mind that this is a business and businesses have expenses.

 

I take the opposite view. The view shared by the Phantom of the Pits and many other successful traders.:

 

When you enter a trade, don't wait for the market to prove you wrong, look for the market to prove you right.

 

Why sit and wait as price moves against you and hits your stop? If you are on the wrong side, get out. Enter a trade looking for price to prove you correct by moving in your desired direction from the start. If it does not, does price really have to move all the way to your stop loss for you to know you are on the wrong side? Of course not. Place the stop, but get out prior to price hitting it.

 

Losses are indeed an business expense in trading. But you can strive to cut your losses short. One good way to do that is to not wait to be proved wrong. Remember, trading is a losers game-he who loses best, wins.

[Anna-Maria 10]

When you enter a trade, don't wait for the market to prove you wrong, look for the market to prove you right.

 

Why sit and wait as price moves against you and hits your stop? If you are on the wrong side, get out. Enter a trade looking for price to prove you correct by moving in your desired direction from the start. If it does not, does price really have to move all the way to your stop loss for you to know you are on the wrong side? Of course not. Place the stop, but get out prior to price hitting it.

 

Losses are indeed an business expense in trading. But you can strive to cut your losses short. One good way to do that is to not wait to be proved wrong. Remember, trading is a losers game-he who loses best, wins.

 

Can't really argue against that!

 

Particularly if you're employing a jobbing strat.

[trader273 10]

I take the opposite view. The view shared by the Phantom of the Pits and many other successful traders.:

 

When you enter a trade, don't wait for the market to prove you wrong, look for the market to prove you right.

 

Why sit and wait as price moves against you and hits your stop? If you are on the wrong side, get out. Enter a trade looking for price to prove you correct by moving in your desired direction from the start. If it does not, does price really have to move all the way to your stop loss for you to know you are on the wrong side? Of course not. Place the stop, but get out prior to price hitting it.

 

Losses are indeed an business expense in trading. But you can strive to cut your losses short. One good way to do that is to not wait to be proved wrong. Remember, trading is a losers game-he who loses best, wins.

 

I guess it is how you define that your trade is wrong. The OP thought his trade was "Wrong" and got out. Then it went to deliver to his price objective. So in essence, he got out a whole 1 tick, instead of what he should have gotten if he let the trade be. So, if trading is an odds game, which it is, the OP just reduced his odds of making money since this was a "winner" ( it delivered the price objective w/o the stop being hit) the next one or two trades could be losers, but since he cut his winner short to 1 tick he will be down instead of up or breakeven.

 

True cutting loses short is good. But it seems that if a trade doesn't instantly go your way you get out. That might work for you, but not for me.

 

I think of it as a restaurant analogy. Say you run one of the best steakhouses around. You get a huge delivery of steaks ( t-bones, porterhouse,etc). You know you must sell them all before they go bad in a week. So on monday you go to look at the reservations for the the weekend and you see you have very little. You get scared that all those expensive steaks you just bought are going to spoil and you have a loss. So you call the other local steakhouse and sell them the steaks for a marginal gain to you. You feel better because you know you wont have a loss. But when the weekend comes around you find your restaurant packed. However, you don't have any steaks to sell these customers. So the money you could have and should have made, is much more then you got. So in the end you would have been better to risk the steaks spoiling rather then sell them early for a small profit.

[brownsfan019 17]

Hey keymoo,

 

that does hurt I know. The way I look at a trade is...if it was a good trade, and I know that the trade has merit and that's why I put it on, then I'll leave it be. If the stop gets hit and I could have gotten out for less, then so be it. I'm not gonna sweat it out, because I know probabilities are in my favor.

 

Maybe it's just me, but that's how I do it.

 

 

I agree with Tin and 273 here.

 

What it comes down to is knowing your system's strengths and weaknesses. Either you KNOW that trades can take a while to develop or you KNOW that they have to get into profit quickly. Noone here can tell you what is best for YOU and YOUR system. You HAVE to prove to yourself what is best. Just looking at this one trade, it appears that this was a great trade. I don't see any problems - your stop was never in danger and your profit target was hit. That's an ideal setup for me. Others want profit and profit instantly.

 

Here's an example from right now - I took at an EC short at 8:45am EST today. At 9:02am the profit target was taken out. Just reading that, it appears to be a nice, good trade. However, here is what happened - at 8:48 and 8:49 I took a little heat. Now, when it came back down again I could have paniced and said just get a tick or two and move on. Had I done that, I would be sitting here, just as the OP, asking why did I get out? My stop was never in danger and this is a 'winner'.

 

Bottom line - if you turn your 'winners' into a few ticks gain and take full stops, you'll never make money.

[TinGull 10]

Yes, Brown. And...if you're basing your system of probabilities and have a probabilistic frame of mind, by taking all the setups you see, but knocking out ones early that you *think* may turn into losers but go on to win...will seriously knock your strategy. For a strategy to be sound you have to be willing to take the trades it shows you and take the losses when they come. Sticking to a plan is very very important to me.

[keymoo 10]

Thanks for the comments guys, some great thought there. I guess I just need to test it. I don't mind taking a bit of heat, no problem if it happens right away. But waiting 30-40 mins with price sitting there doing nothing is not exactly a great momentum trade. If price had gone up I would have been saying to myself, great trade you got out with 1 tick profit instead of stop loss getting hit.

 

Thanks for the comments.

[brownsfan019 17]

Thanks for the comments guys, some great thought there. I guess I just need to test it. I don't mind taking a bit of heat, no problem if it happens right away. But waiting 30-40 mins with price sitting there doing nothing is not exactly a great momentum trade. If price had gone up I would have been saying to myself, great trade you got out with 1 tick profit instead of stop loss getting hit.

 

Thanks for the comments.

 

 

Key - sounds like you don't even know if your setups need to be given 'wiggle' room or not. That's step 1 - prove to yourself that either a) my setups can take 30+ minutes to develop or b) they need to turn profitable soon (and how you define 'soon').

 

There's great advice in this thread, but it's ultimately up to you to prove to yourself the best way for you to trade.

[walterw 10]

Hey guys, if we cant manage a position I think that steak restaurant bussiness sounds good for a day job jejeje :p just kiding....

 

 

yea well I think the issue here its about timing entry and having a more competitive stop placement in relashionship with the trade`s potencial... I think the trade original concept its ok, maybe I would personally manage the entry timing in a very diferent way that could make you more relax during does 40 min and sit and wait... if my stop its more tight no need to panic...

 

anyway I believe this congestion conditions are no reason to close your trade prematurely, this lack of momentum happen all the time and it doesnt interfer with the markets overall performance...

[Anonymous 11]

I am more concerned with the return of my capital, than the return on my capital. --Mark Twain

 

 

I would add Mark Fisher's concept of time here as well. Time is the element most traders tend to neglect in trading. Mark recommends using both a money stop and a time stop.

 

If price is around the same place you entered after 15 minutes.......

 

It's time to get out.

 

If everyone else can get in at the same price you did, then how good a trade can it be, says Mark.

 

Timeframe traded obviously would be a factor. If you trade off of 3 min chart, then 15 minutes later your trade has gone nowhere, it is time to re-evaluate. On the other hand, if you trade off a 1 hour chart, 15 mins would not matter so the time is relational to the timeframe traded.

 

ACD really has some Market Profile concepts embedded within it. The concept of time in Market Profile is how we define market acceptance. That is why he says wait 15 minutes before taking the A up or A down. You want to wait for the market to accept the new "breakout" price. However, the longer price stays there, the more likely that price becomes entrenched in this accepted area. Market Profilers know this as Value and the Value Area.

 

The point, as a trader trying to take advantage of price movement, movement must be thought of in both price and time. Price movement is obvious. Time is less so. But if you go long at x time and x+15 price is still there, movement in terms of time is null.

 

I think of a hobo in New York who wants to get to Seattle. What is the best way for him to do that? Get on a train heading east and slowing down, hoping it will turn around and head west. Or get on a train moving west and picking up speed. Getting on a train going east, clearly isn't the best. Nor would getting on a train that is pointed west, but still in the station 2 hours later. The hobo wants a train both pointing west and picking up speed (distance X time).

 

Time in a trade represents risk. For the hobo sitting on a train that is going nowhere is added risk. If he gets caught, then he gets kicked off and taken to jail. Therefore, there is less risk associated with trains that are moving. The longer the train is stagnant, the more chance an employee will wonder onto the car he is hiding in.

[keymoo 10]

I am more concerned with the return of my capital, than the return on my capital. --Mark Twain

 

 

I would add Mark Fisher's concept of time here as well. Time is the element most traders tend to neglect in trading. Mark recommends using both a money stop and a time stop.

 

If price is around the same place you entered after 15 minutes.......

 

It's time to get out.

 

If everyone else can get in at the same price you did, then how good a trade can it be, says Mark.

 

Timeframe traded obviously would be a factor. If you trade off of 3 min chart, then 15 minutes later your trade has gone nowhere, it is time to re-evaluate. On the other hand, if you trade off a 1 hour chart, 15 mins would not matter so the time is relational to the timeframe traded.

 

ACD really has some Market Profile concepts embedded within it. The concept of time in Market Profile is how we define market acceptance. That is why he says wait 15 minutes before taking the A up or A down. You want to wait for the market to accept the new "breakout" price. However, the longer price stays there, the more likely that price becomes entrenched in this accepted area. Market Profilers know this as Value and the Value Area.

 

The point, as a trader trying to take advantage of price movement, movement must be thought of in both price and time. Price movement is obvious. Time is less so. But if you go long at x time and x+15 price is still there, movement in terms of time is null.

 

I think of a hobo in New York who wants to get to Seattle. What is the best way for him to do that? Get on a train heading east and slowing down, hoping it will turn around and head west. Or get on a train moving west and picking up speed. Getting on a train going east, clearly isn't the best. Nor would getting on a train that is pointed west, but still in the station 2 hours later. The hobo wants a train both pointing west and picking up speed (distance X time).

 

Time in a trade represents risk. For the hobo sitting on a train that is going nowhere is added risk. If he gets caught, then he gets kicked off and taken to jail. Therefore, there is less risk associated with trains that are moving. The longer the train is stagnant, the more chance an employee will wonder onto the car he is hiding in.

 

Very eloquently put PivotProfiler. That is precisely the reason I got out of the trade. However, I should slap my own wrists because I have not tested the time-stop theory for myself in backtesting (too much system backtesting to do), but I do like the theory of it. However the risk in this case in getting out was that price moves in the direction I was positioned in once I have gotten out. The risk in this case is opportunity risk, and in this business we need winning trades to make money, right?

 

I would be interested in what you have in your own trading plan with regards to time-stops. Would you share? Perhaps have a chat over skype or something?

 

Thanks!

keymoo

[trader273 10]

 

If price is around the same place you entered after 15 minutes.......

 

It's time to get out.

 

Ok, Ill play devil's advocate here. What is so special about 15 minutes. Why not 12 or 23 or 5. Is 15 just picked out of the air. Also, the word "Around" is open to interpretation. Is it 1 or 2 ticks in either direction of your entry. Or is it 3 ticks.

 

No offense is intended, but just because you read it in a book, doesn't make it a sound strategy.

[brownsfan019 17]

I am more concerned with the return of my capital, than the return on my capital. --Mark Twain

 

If price is around the same place you entered after 15 minutes.......

 

It's time to get out.

 

 

First - if you are only concerned with return of capital, then active day-trading is the completely wrong business to be in. Buy CD's at your local bank where they are FDIC insured.

 

Second - time stops are a viable strategy if it works for YOU. Pivot you are making some very specific recommendations w/o knowing the OP and his trading methodology. To say that after 15 min's you must exit is a very specific recommendation after looking at one chart. I say that exiting based purely on time is for amateurs and if you turn a 'winning' trade into a loser, then your full losses are going to destroy your account real quick and the OP's initial post proved this very well. Is a trade a 'worse' trade simply b/c it takes 50 minutes to hit the profit vs. 10? My account shows the same $$$ regardless of how long the trade took.

 

Here's another example from today on the EC (today was a great day for this discussion to come up) - at 9:22am EST I took a short. My 10 tick profit was hit and that's a cool $125/contract. Not bad. Here's how the trade played out though - at 9:53, 9:55, AND 9:59 my stop was ONE tick from being taken out. I just assumed this trade was done for a loss. But, the stop was never taken out and the profit target hit at 10:44am. That is one hour and 22 minutes later. Talk about taking heat and wanting to hit that flatten button so quickly... Again, my account balance simply shows a winning trade for +$125 per contract traded. It does not care that it took over an hour to deliver. The stipulation here is that I KNOW that my trades can take this long to develop. Does it suck? Sure. Is it a great feeling when you follow your rules and pocket the gain? You bet!!

 

My point being that EACH person must test and trade according to what works for THEM. Nobody, myself included, can tell the OP what is best here. We do not know him, his methodology, his account size, his stomach for pain, etc. etc. Since we will never know him personally, the best advice for him to follow is test your trading yourself, paper trade in real time and then make a solid rule - either exit after XXX minutes or wait till stop or profit target. If you opt for the 2nd suggestion - simply set an OCO order and then walk away. Literally.

[Anonymous 11]

Ok, Ill play devil's advocate here. What is so special about 15 minutes. Why not 12 or 23 or 5. Is 15 just picked out of the air. Also, the word "Around" is open to interpretation. Is it 1 or 2 ticks in either direction of your entry. Or is it 3 ticks.

 

No offense is intended, but just because you read it in a book, doesn't make it a sound strategy.

 

15 minutes is half the opening range of 30 mins. Nothing more special than that. Althought a trader could get more creative and pick a FIB or Music Math number. The point is that you want to be entering just as, or right before the influx of the dominant order flow. This causes price to rise or fall. If there is no new surge of order flow than price doesn't move much. Hence anybody that would want to get long, for example, can do so at about the price you did. In a good trade, each person that wants to get long, has to pay a higher price than you (the market is moving up).

 

So you want to position yourself on the side of the dominate order flow before it begins, yet you do not want to be waiting too long for it to appear.

[torero 10]

I'll have to say that if you see at that moment the trade seems to go against you, you exit. Then the next moment it does turn your way, you get in. This is the problem is that AT THAT MOMENT, what you see and interpret changes from one setup to another. This is what I consider trading on the fly, unplanned. If I come in with the trade, I have to know beforehand where I will be proven wrong, some resistance or support area, a valid objective level. Seeing the tape doing something I don't like at that moment doesn't give me enough to exit, because the next moment can be favorable. To me this is unplanned trading, intuitive trading. If you have it, great! if you don't, your account won't last long).

[TinGull 10]

Regarding S/R...that is why all of my trades are based on Market Profile. I know that if we are outside of value and come in to test VAH for example, if we dip into value by 7 ticks or so, there's a higher probability of price moving lower to another value pivot (be it VAL or POC) than price quickly reversing and coming my way. This keeps my stops tight with a higher % of wins (62% so far in 2007) and lets me keep a risk/reward of average $.80:$2.00.

[brownsfan019 17]

So you want to position yourself on the side of the dominate order flow before it begins, yet you do not want to be waiting too long for it to appear.

 

That may perhaps be the holy grail - get in a few seconds before a move and exit in 30 seconds when your profit is hit. Sounds great and looks great in a textbook.

 

Obviously Pivot and I have different views of time stops. And if a 15 time stop works for Pivot, that's perfect. Time stops do not work for me. I agree that you want to be in the trade before the move, but I really don't care if that move is 1, 5, 30, or 60 minutes after I enter. As long as my stop area is respected, then it's a good trade in my opinion. The key is to realize which type of trader are you and then do the same thing over and over and over again. You cannot one day wish you were a time stop trader and the next day wish you just let the trade go.

[brownsfan019 17]

I'll have to say that if you see at that moment the trade seems to go against you, you exit. Then the next moment it does turn your way, you get in. This is the problem is that AT THAT MOMENT, what you see and interpret changes from one setup to another. This is what I consider trading on the fly, unplanned. If I come in with the trade, I have to know beforehand where I will be proven wrong, some resistance or support area, a valid objective level. Seeing the tape doing something I don't like at that moment doesn't give me enough to exit, because the next moment can be favorable. To me this is unplanned trading, intuitive trading. If you have it, great! if you don't, your account won't last long).

 

tor - I would think that trading by the seat of your pants can make a lot of money. For your broker. You are correct that certain traders could make this a profitable strategy, but for most retail traders (and especially newbies) this is a one way ticket to blowing up your account, especially in futures.

[Anonymous 11]

So many things to say.

 

Let's start with this. Mark Fisher is/was one of the biggest oil traders on the floor of the NYMEX. The Phantom of the Pits, as his name implies, was a large Pit trader in the S&P's amongst others.

 

As pit traders they have strategies that allow them to enter and exit positions on a very quick basis. It is not unheard of for any pit trader to enter a position long, go to neutral (sell the position) and then go long again in less than 5 minutes time. Commission cost are not of a concern to them. Nor are strategies that take time to develop (like a cross over-more later).

 

Hence if you have a method that does not allow for multiple entries or quick re-entries, exiting quickly becomes a problem.

 

BTW, just because it is in a book may not make it true, but I know that Mark has made more money trading than I have. I know he trades with size few people do. When he opens his mouth........

 

At the very least I want to listen.

 

How else is Knowledge passed on? If you are not fortunate enough to have a mentor, don't you have to rely on screen time and books?

 

No assertion that what I say is Gospel. It is more to spark ideas than define action. I don't use ACD anymore and would really not recommend it. However it is worth knowing how a real(pit) trader thinks.

 

Take a position, don't get married to it, get out quickly and be ready to get back in just as quick.

 

I have decided to break up the posts.

[walterw 10]

Keymoo I think you brought a topic that most of us traders have some emotional attachment.... this F&/%$k stops has made us suffer enough in our trading history... now if you are open minded (I think you are, you bring a very sensitive topic with great sincerity) I would like to share with you a little hint as to timing that may help or not but can add a nice educational input to this entire thread.... tell me if you are interested and I will post it, otherwise no problem... cheers Walter.

[Anonymous 11]

And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit.

 

And their experiences invariably matched mine-that is, they made know real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade (sit) than hundreds did in the days of his ignorance.--Edwin Lefevre Reminiscenses of a Stock Operator, p. 68-69.

 

I believe in surrendering to the market. In being in tune with the market. I believe in sitting tight. In fact, I do not exit a trade with a profit. I move my stop until that time where the market hits it. Being early, however, is not the same thing as being right. Being early is the same as being wrong.

 

So what are the ways to exit with a profit?

 

1. Being stopped out.

 

2. Exiting a position because the day session is about to end and you are a day trader.

 

3. Emergency situation that is going to take you away from the computer screen. And thus not allow you to watch the position.

 

If price move against you, things are different. Do you really need to wait for your stop to be hit to know you are on the wrong side? If your initial stop is based on an area where if hit, all conditions (for your trade)would be changed, then waiting for the stop to be hit still makes little sense. Before it is hit, you know you may be right on direction but are wrong on timing.

 

Why not get out, with the intention of re-entering when price starts moving in the direction of the initial trade?

 

A market moving sideways would be the same thing. The non-directional movement means you are wrong on timing, but could be right on direction. Here a "price band" should be used. If price is such that your position is +8 pips to -8 pips after X amount of time, exit. If you enter the trade and price moves -10 pips/ticks against you from the start-get out. Even with your stop was placed 20 pips/ticks away. These numbers are pulled out of a hat, so don't focus on them rather the concept itself.

 

Two bars later if price takes off, Jump back in.

 

If the price you paid is the same that the 'herd' can get 32 minutes later, then you are probably not in a trade worth being in at the time. Good or Bad trades should mean whether or not you followed your rules, your trading plan. If you did, the trade is Good. If you did not. The trade is Bad.

 

Here, good or bad trades (no caps) means a trade that is moving both in your direction and doing so with increasing momentum. That is, you want to take advantage of the Supply/Demand imbalance (order flow) as to be entering just prior to or at the start of the mark-up phase.

 

From a VSA/Wyckoff perspective sideways channels are accumulation or distribution phases. As a trader there is little value in entering during these phases. They can last for some time and the longer they last the more dramatic the subsequent move is. Trader should seek to enter as the mark up phase begins and the order flow is on his side. It should be noted that the longer term investor should be looking to enter during these phases.

 

Another thing to consider is this: Capital tied up in a trade has an opportunity cost. Most people do not trade multiple tradable (although they should), and if you have capital tied up in a trade that is going nowhere, that is money that can not be put into a market that is moving. Trend followers need trend. Some market somewhere is always trending. If a trend follower has capital tied up in a trade that is not trending, he is missing out on the very thing that gives him is edge-trend.

[brownsfan019 17]

Take a position, don't get married to it, get out quickly and be ready to get back in just as quick.

 

And that is one way of trading. Another way is to be confident in your entry and stop level and then let the trade work. This will reduce commission costs considerably and help prevent overtrading.