Stop Loss Orders

[TopstepTrader 10]

Trading is like walking through a mine field. There are only a few right ways to go, but lots of wrong ways to go; and one step in the wrong direction – kaboom!

 

One of the most critical things to consider in your trading plan is how you handle your stop loss orders. It is important because, initially, you need to give the trade enough room to work. If your stop is too close from the start, at times you will be out of the trade with a loss that otherwise would have been profitable. Of course, the closer the initial stop is to your entry, the more likely it is to get hit. At the same time, if it is too far away, you’re giving it too much room to run against you.

 

After the trade is profitable, how much room you give your trailing stop is another critical decision. You need to give some room for pullbacks or you will be out of a trade that keeps on going without you still in the trade. On the other hand, if the market does reverse, you want to get out as close to the end of the move as possible.

 

The tough part about this is that the answers to these questions are different depending on your trading style (ie. Do you want to trade a few times or many times throughout the day?), what you trade, and how that market moves. Every market is different. It goes back to observing your market very, very closely until you know it extremely well.

 

Remember, the markets are not random, although they certainly seem that way at first. Behind the markets are real people with a lot more money at stake than we do. It seems to me that over very short price distances, markets appear more random and over larger price movements more consistent and predictable. If we can take a step back from the “noise” of the market and see the big picture, doing so will help us make profitable trades.

 

I want to share with you two experiences I’ve had at TopStep. On one occasion, I put my initial stop a little too close in the hopes of saving money if I was wrong. If I had given the initial stop one more tick of room it would have been a very profitable trade. On another occasion, using an OCO order without a trailing stop, the Dow mini’s went up nearly a full handle, coming very close to hitting my large profit target, but then coming all the way back down and stopping me out with a loss.

 

A good rule of thumb is, after a small or moderate profit, bring your stop to break-even; as the profit grows, don’t give back more than 50%.

 

Many Profitable Returns,

 

Trader Gregg

 

Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001.

[fast 10]

  TopstepTrader said:

I want to share with you two experiences I’ve had at TopStep. On one occasion, I put my initial stop a little too close in the hopes of saving money if I was wrong. If I had given the initial stop one more tick of room it would have been a very profitable trade.

For me, the key to placing an initial stop is for it to be a function of a derivative of repeatable chart patterns. For example, if I'm trading long, I'll determine what I believe is the cycle low.

 

For instance, suppose that I determine that the cycle low on a given security is $7.50. If I'm correct, the stock will rise. If I'm incorrect, the stock will decline. I put a lot of effort into identifying cycle highs and lows, and sometimes I miss the mark, but when I do, the very last place I want to be is holding a position, even if it only dips a single tick, so I will be stopped out at exactly (if I'm lucky) $7.49--talk about not giving it much room!

 

Actually, I do give it some room, but I don't do it by using a stop loss that is percentage based, and I don't do it by using a stop loss that is price based, and I don't do it by taking into account the volatility of the market. I do it by having a proper trigger mechanism that is higher, of course, than the cycle low (for longs)--that's what provides the wiggle room--not by lowering my stop loss point using arbitrary percentages etc, but by raising my entry point ... and that's better anyway, as it adds confirmation to my belief that I have accurately pegged the cycle extreme—the lowest low in price between the previous and following cycle high.

 

Why do I only give it a single tick? Because that's the first point where it's crystal clear that I was wrong. There's a lot more to say, but I just wanted to share a little since I too have experienced close calls. In fact, being stopped out with such close stops isn't all bad, since it's sometimes followed by another trigger following a complex retrace ... just adding even more opportunity for a successful trade.

[henryduncan12 10]

Thanks to share suggestion about using "stop loss". There are number of traders don't know when and how to use stop loss so it may be helpful for them.

[khamore1 10]

I would like to raise another aspect of the “stop loss” order and share with you a few suggestions

 

I use Trade Station as my main trading platform the default on “ stop market” orders are 5 ticks range (I.e. if the stop loss was triggered 1345 the actual stop might occur within 5 tick of that price)

 

of course one can change it from zero ticks to 100 I wanted to change it to zero or one but I was strongly advised by Trade Station support team not to do so, as a result any time my “market” orders are triggered I have a big slippage against me, only one time in the last three years this range ended in my favor.

 

I would like to hear from other members what their stop loss range on their trading platform is and second question do you use the default on your platform or you set your own range. What this range is