exactly anyone who thinks they can run a stop on initiated order flow won't have a chance
Are stops a complete joke ?
- Thread starter zanek
- Start date
Zanek, you have got some excellent advice from some of the best traders in business like intradaybill and NoDoji to name just a few on this tread. Once you take their excellent advice you can begin to get your trading to the next level. On the road to the next level you need to learn to build trades the way that have been explained to you and learn to also examine trading from a macro view and a system view.
Stops can be thought of differently in a system view. For example when I trade ES itâs on a daily chart it is using automation. My percent profitable rate is currently 45.83% with ES. I look at stops as protection until I get a trend trade that pushes my Avg Win:Avg Loss ratio to 3:1. In the system view as long as the losing trades and draw downs stay in line then the stops served their purpose of protection.
System thinking means some trades are losers and need to have stops so that we can get to the trades that produce the meat of the system. Years ago I thought the opposite. Tweak the losing trades to smaller and smaller losses and the bottom line goes way up! Sorry it doesn't work that way. You will find it is difficult to make entry rules that say one thing for winners and another for losers. So you should aim to control exit rules to protect your capital and entry rules to maximize your gains.
Macro view also means examine a number of trades from your system to see if taken as a group they performed as expected. This way you will stay out of the trap of "this one trade was an SOB because ...." In the macro view, if the loss was slightly larger than normal but not out of systems expected range then don't sweat it. If the stats on the wins and losses taken together produce normal results they performed great - forget about that one stinker losing trade that was stopped out (unless it means the systems faulty).
If you hang up on any individual trade it can throw you out of the game mentally, because it can make you emotionally tied to your trading. It does not take long before you throw in the towel as attachment to individual trades grows. Many traders including myself have been coerced by individual trades in a system that we believe invalidate the system. For example I discovered a profitable system I cast aside was an excellent performer even though 1 in every 12 losing trades was double the expected loss. It was a double losing trade based on double ATR that spooked me out of the system. If I had looked at the macro view I would have realized this trade happened infrequently and not tossed out a winning system.
You can't let yourself get emotional about either wins or losses. Losses are the cost of doing business to make the wins that give us the profits. The discussion of the art of defining where to place stops I will leave to others.
these bots and HFT traders will take your stops
Trust me. Iam an Algor developer.
Trust me. Iam an Algor developer.
Bingo. There are times I trade with close stops and times I trade with only a disaster stop. Right now I'm in between those two extremes. 99% of my losses are discretionary trade out losses. I've run many simulations on the placement of stops and over the long run, it makes no difference where I place it because they always led to net losses.
If you place it too close you get nickeled and dimed to death. If you place it too far that one big loser will wipe out the winners. As Scat said, it's both a guess and art but I'd say it's more art than anything else.
If you place it too close you get nickeled and dimed to death. If you place it too far that one big loser will wipe out the winners. As Scat said, it's both a guess and art but I'd say it's more art than anything else.
you're a complete joke.
hahaha, kidding, just kidding.
Use technical indicators like speed lines and Fibonacci retracements or just below support lines for stops.
P.S. - make sure you make them limit orders as well, never do market orders!
hahaha, kidding, just kidding.
Use technical indicators like speed lines and Fibonacci retracements or just below support lines for stops.
P.S. - make sure you make them limit orders as well, never do market orders!
KTS, I didn't attach a chart because I figured everyone brought their own
I attached one here.I'd like to add a bit about stops getting "run". When price breaks through a previous bar high/low, or a previous S/R pivot point, or a high/low of the day, these are very common levels for price action traders and automated systems to buy and sell. These are also common levels for protective stops to be placed as well.
If a break through a key level fails and price comes right back after a very shallow move, it was likely a "stop run". This means that the moment a trader/algo bought or sold 1 tick outside the key level, it triggered stop orders, turning them into market orders which run price until those orders are filled. During low volume periods of time, I imagine market makers/algos pull bids/offers, allowing the market orders from stops to run farther, then buy/sell into weakness/strength. I avoid trading midday mush for just this reason; you see games played there all the time.
If no REAL volume of buyers or sellers are stepping up to the plate, then you end up with a failed breakout and to the unfortunate top/bottom picking counter-trend trader it feels like the market was just out to get you, because it stopped you out and now price is going exactly where you wanted it to go. For the late-to-the-party with-trend trader, this is recognized as a failed breakout and it's time to bail quickly and re-evaluate for a possible trend reversal.
Most profitable traders use breaks of key levels to enter trades in the direction of the break, for two reasons: 1) a break through a key level indicates buying or selling strength if it occurs on volume and 2) if the break through the level has no follow through, you can escape the trade quickly with a very limited loss.
Zanek's BAC trade broke down the next day in the direction of the trend (down). The short sellers who initiated a short trade on the break through that key double bottom support level in an established down trend or added to an already profitable short position were looking for further follow through. When price only broke down slightly and then reversed to start breaking through previous days' highs, it became clear that the final breakout of the double bottom was a failed breakout. So the late-to-the-party with-trend shorts could escape break even or for a small loss, and the smart counter-trend traders now have a confirmed early entry into a long position, with...a tight stop below the failed breakout point.
If you are a counter-trend trader who wants to try picking a top or bottom, you have to trade with very wide disaster stops. But if you wait for confirmation of real buying or selling strength to break the trend, you are joining the direction of price movement and can use a tight stop above/below a key level.
Either method can be profitable, but I've determined there is a Murphy's Law of trading that states the distance of a stop is directly proportional to the probability of price hitting it
Are you serious? A stop limit at 49.80 for example. The stock trades at 49.85 and a big block comes through and sends the next tick down to 49.75 and you're screwed if the stock keeps falling from there. Always use a stop market order and trade liquid stocks that allow you to get out close to where your stop is.
I've got stop-setting down to a science, actually. It did take a long time to realize the crucial variable, though, and I ain't tellin'. One of the reasons I love to read threads about stops is to check and see if anyone else is using the same method. So far, no one is, which is how I like it b/c that means my stops are not really going to be on any market maker's radar screen for a stop run.
Honestly, though, it's meant a vast improvement in my trading. My "disaster stop", as it's been called on this thread, gets hit less than 8% of the time and with the stop movement rules I put in place, my average actual loss is only about 45% of what the initial potential loss was, given the initial stop distance from the entry. I guess some would quibble that even 8% means my method isn't really scientific and they might be correct, but only assuming there's a method of stop-setting in which the "disaster stop" never gets hit, which seems dubious to me, unless we're talking a stop set so far away as to force a position size too small to matter (assuming the trader uses the potential maximum loss on the trade to set position-size, which is the most rational method I know of for sizing).
Those who trade without stops obviously never have a "disaster stop" get hit, so they don't count.
Stops are not a joke at all, but you will be, when you blow your account..so use them.
How tight a stop is, is pretty subjective, but tends to agree with the trading style of the trader. A .50 cent stop day trading, is probably OK , but a .50 cent stop on a swing trade is ridiculous .
The method of how you trade has a lot to do with stops as well. I trade Andrews Pitchforks, developed by Dr. Alan Andrews, and Roger Babson, and I do my best to trade according to the way they do. So if you're trading someone else's system, your stops should be inline with how they would use them too.
Basically, just use stops. It's that simple.
How tight a stop is, is pretty subjective, but tends to agree with the trading style of the trader. A .50 cent stop day trading, is probably OK , but a .50 cent stop on a swing trade is ridiculous .
The method of how you trade has a lot to do with stops as well. I trade Andrews Pitchforks, developed by Dr. Alan Andrews, and Roger Babson, and I do my best to trade according to the way they do. So if you're trading someone else's system, your stops should be inline with how they would use them too.
Basically, just use stops. It's that simple.