Are stops a complete joke ?

[deadbroke]

Quote from zanek:



Deadbroke: placing your stop that low exposes you to a large loss (3-5% + difference of entry price). How many times have you been hit with that super low stop ?

Wrong! It allows one to stay with the extant Trend without getting knocked off.

When NO trend exists, yes, then the STOP is much closer depending on risk appetite. But why bother with such a situation when one could just look elsewhere for an extant trend.

If all else fails place the STOP in NoDoji's bra. Nobody will find it.

 

[deadbroke]

Quote from NoDoji:

You entered the swing trade before price signaled an entry. BAC was falling and you tried to catch a falling knife instead of giving up a little on the entry in order to enter based on price action.

You'd want to get long if price broke through 11/29's high. So your BUY stop is placed at 11.37. On 11/30 price breaks down support and your swing long entry is never triggered.

On Dec 2nd price demonstrates enough strength to break through that 11/29 high and you're taken into a long trade at a much safer place.

Instead of trying to pick tops and bottoms, let the money that moves the market take you into a trade in the direction of the move.

Your protective stop then follows the previous day's low or pivot low depending on how you're handling your swing trade.

That's exactly how the HERD does it and the stats show 95% lose and lose consistently.

But in JOURNALS we have 100% winners.


>>> Instead of trying to pick tops and bottoms, let the money that moves the market take you into a trade in the direction of the move.<<<

A kiss is just shopping upstairs for downstairs merchandise.

 

[deadbroke]

Quote from Tonyorlando:

Very few if any true pro traders use any kind of stops

Funds are hedged in different ways. Stops are for true noobs and book reading maestros.

Professor of Finance, author of "TA of stock trends 9th Ed" - made big bucks last year and for 10 years in a row - Stops are 3-5% and adjusted with trend. Earnings documented and seen by the dead one.


Only idiots don't use stops and bigger idiots use tight stops and kill themselves right at the starting gate in the hope that they curtail their losses by tight placement.

 

[Shagi]

The OP's experience is similar in my early days when I used very tight stops thinking I was preserving capital to fight for another day. I never took a big hit but account equity vanished over time because of stops getting hit often even though I was consistently right about market direction nearly 70% - 80% of the time. I found it frustrating because also I did not have the mental strength to re-enter after taking a couple of consecutive hits.

So I stopped using tight stops and bingo. Yeah sure once in while a I take a big hit (a big hit relative to that market's volatility/normal fluctuations and not account equity %) but it does not hurt because I'm right more often and I never miss a move when I'm right. To clarify using ES day trading example - I dont use a 2 point stops which is common but use a 6 to 7 point wide stop with position size adjusted according to equity and heat I can tolerate. Also setting a risk to reward is nonsense because who knows how far market will go. I get out when the market's action tells me so and how I know when to get out comes from experience from doing the wrong things over and over again. I get out be it with a 2pts loss or 1pt profit or 15pt profit. I dont set profit targets.

I however rapidly move the stop if Im right and market has reached a point where its normal fluctuations will not take me out. Its science on the one part and an art as someone said early on. The result is when Im wrong I'm really dead wrong to a point where it becomes necessary to change trading policy in terms of market directional bias - its then a matter of skill only that determines whether I make money or lose and not market fluctuations.

 

[logic_man]

Quote from Tonyorlando:

Very few if any true pro traders use any kind of stops

Funds are hedged in different ways. Stops are for true noobs and book reading maestros.

Those who advocate stops work for brokers who want you to churn. Particullarly forex stop advocates as the dealer keeps your losses

I'm sure you have data to back up your claim about pros!

I advocate stops, although, of course, you have to use them correctly, and I don't work for a broker.

If pros use hedges in the same way others use stops, then they are functionally equivalent. 6 of one, half-dozen of the other.

Stops (or hedges, if you're a "pro") should be an integrated part of your trading method, not something arbitrary and should reflect the fundamental logic underlying your trade. Every single aspect of my trading method coheres to form a completely logical and consistent whole from entry to exit. The instruments used to implement the strategy could change, i.e. I could "hedge" with some other instrument instead of using stops on the actual instrument I'm trading, but the underlying logic would remain the same.

 

[logic_man]

Quote from Tonyorlando:

Very few if any true pro traders use any kind of stops

Funds are hedged in different ways. Stops are for true noobs and book reading maestros.

Those who advocate stops work for brokers who want you to churn. Particullarly forex stop advocates as the dealer keeps your losses

Also, to take an extreme example, what would a "pro", not using any stops, do with a short position initiated on March 9, 2009? You can't tell me not a single "pro" went short that day and that every single short trade was initiated by "noobs and book reading maestros". Should that "pro" just keep waiting for that March 2009 low to get broken?

 

[jack hershey]

Maybe this thread is reaching a turning point regarding the nuts and bolts of stops.

To me Shagi typifies a person making progress in getting some tools.

A while back RN tossed out one of his extreme comments about my posts. Check it out. Here is another one along the same line regarding stops.

For people in the subset represented by RabbitOne, the1, Nodoji and logic man, certainly stops are part of the plan by necessity.

Tonyorlando's recent brief comments make significant points:

1. How does a person tell what times to do what?

and

2. Very few, if any, pros use stops..... They hedge.

The market could tell anyone what time to do what. By examining about 12 approaches you can boil it down to "telling what times to do what.

I have posted my approach to setting stops for those who need to use stops. Any inductively based trader needs to use stops or needs to hedge.

A small subset of traders do not have that need simply because they do a routine based on a strategy for a plan , all of which are deductively based.

To cut to the chase, anyone related to or relating to this post can consider the pragmatic solution for the problems they are facing.

The market tools to use include the ATR the market PACE and to some extent the sentiment and dominance.

ATR has a formula.

Use 1600 data points on a 5 minute ES chart to determine the Deciles of volume. Use one decile for extremes and two deciles for the four remaining PACE groupings.

Sentiment can be determined by an open to open color rule.

Dominance is determined by the first derivative of volume using a short term statistical equivalent of the first derivative in calculus.

The purpose of stops is to keep a person in a trend profit segment of each trade and to allow the full, beginning to end, offer to be taken. The stop is "outside" and the hold is "inside".

To construct this "boundary" you use the 1600 price bars that correspond to the volume PACE family you have constructed. In markets, time is NOT the dependnet variable, volume is and deciles are good enough.

Contruct matricies of volatility and adjacent bar overlap. Note no kurtosis nor skew. this will build confidence for you. for each new bar add it in after deleting the earleist data point.
Be fore going further ask your self if this is still new to you regardles of the fact all of this has been posted before in document form or post it form.

Now you are looking at the boundary on the volatility matrices for ES. you can make this up for any fractal, for any market as long as there is liquidity defined as five times capacity whereby no blocks that size occur. They don't by definition. this means ES cannot be traded with stops during non RTH's.

To see the boundary most clearly, examine the outer limits of the distribution @ each pace.

To operate using precise stops, use a routine that acknowledges bar by bar market pace and set and replace stops accordingly.

What always happens before a stop is hit is the concurrent sentiment and dominance change. No one mentioned in this post does this, ever. This forewarning is found intrabar on a candlestic named (I do not use candlesticks) DOJI. To detect simply color bars open to open and look for concurrent "change" on P and V bars. Price goes "through" the doji. Also notice the concurrent peak on the volume bar. By using PRV as a standin in for the first derivative, you do a go/no go test 12 seconds into any bar and thereafter. When and if lock in falls (equal actual volume of two last bars) you know you do not have a segment ending.

General comments.

Long ago, market information was not streaming as you know it presently.

In that era a sustitute for the above was required. So data points were taken during the day at intervals.

There were no mini's and telephones and card were used. It was the days of C&R's and ten steps were involved on 'phone calls.

My practice wall called or be called every ten minutes (DJX.X, the big contract, was traded with voice recognition)

My custom was to manually make two 30 minute charts. The charts were overlapped using four colors. the key feature was to project the next 30 minute bar by triagulating the projection. When the actual occurred it was super imposed.

as Tonyorlando proferred, not stops were used. I did not hedge, however. What was MOST "TELLING was two things: the floor noise and the request for current info on behalf of those coat-tailing me. I traded with E. D. F. Man at that time. (London office and elsewhere).

On behalf of RN's noblesse oblige obligations, the IAS of stocks has two halves. See there that the lower half is devoted to the boundary conditions of each stock ever placed in any Universe at any time.

When it comes to stops, the market dictates and under no circum stances should any inductively based trader ever do any "averaging". This includes AMA's and EMA's and any two line crossover theory.

 

[jack hershey]

Quote from logic_man:

Also, to take an extreme example, what would a "pro", not using any stops, do with a short position initiated on March 9, 2009? You can't tell me not a single "pro" went short that day and that every single short trade was initiated by "noobs and book reading maestros". Should that "pro" just keep waiting for that March 2009 low to get broken?

The way trading works is that "pro's" and their ilk are in the market all of the time.

Mostly staying in the market is done with consideration to sentiment and dominance. With dominant conditions sentiment dictates the correct side. With non dominant conditions, the opposite of measured sentiment is the correct side.

As you will learn, on a given time frame there is a DOJI intrabar to mark the sentiment and dominance shift. Reason may tell you that the DOJI occurs on all time frames. Further as you think it through, you get to find out how these DOJI's peel off. Pro's find out according to their acumen for monitoring, strategizing and planning. Some are the first to know; some are the last to know.

You can look intraday and watch what side of the Premium the indexes are on to see these situations most closely. Find the Premium for the DJ on indexarb.com or use a calculated value from the formula (I use a diffent evaluation that can be found in several platform libraries of snippets to add to panes. (have very high (more frequent calculation) requirements)

Say you wanted to do a self appraisal. Can you differentiate between a retrace and a reversal at the time of the beginning of each? Pro's and their ilk can. Therefore, they can stay in the market all of the time and take profits trend segement by trend segment.

You may get to that point in the future if you keep an open mind. Everyone is capable of trading above fifth grade. Most potential traders fail; the matter lies with reasoning capability.

March 2009, in terms of this Depression was point 2 of the parallel ogerm that contains the Depression.

Currently we are connecting the RTL of the Depression between point 1 the beginning point and a tangent to the arc of the current inverted saucer formation.

After this happens, the third major move of the Depression begins. the major characterisitc of this move in its first 6 years will be volatility expansions of the channel of the third move. Volatility Expansions occur on the LTL of a channel. Geometrically thiss is handled by "accelerating" the channel (steepening it.

About three of these steepenings will occur.

You can note that the inverted saucer call was made on 01SEP09.

 

[NoDoji]

Quote from Tonyorlando:

Very few if any true pro traders use any kind of stops

I have no idea if institutional investors have stop loss orders in place on positions. However, I do know that institutional investors have millions or billions of dollars invested, and they have very diversified portfolios, likely hedged in a variety of ways in the event of a black swan event. If one stock in their portfolio runs hard against them due to a news event, stop losses won't help much anyway. But since they're diversified and hedged, such an event won't cause much damage either, despite the lack of a hard stop loss order on the position.

Large funds (true pro traders) experience deep losses and years with negative returns, so they obviously can be quite "wrong" at times. Because of their diversification and hedging, and the sheer size of their holdings (which limits their ability to exit quickly at a specific price without moving the market significantly), these institutional investors tend to have returns, even during strongly trending markets, far lower than individual retail traders who make their living trading.

If by the term "pro traders" you are referring to anybody that generates income by trading, then your statement is just plain wrong. I know several traders who make a living trading and most of them use stop loss orders, some of them (myself included) very tight stop loss orders. I put on 8-16 trades a day, so stop loss orders protect my capital while I position myself for the "runners". Retail (non professional) day traders and short term swing traders who trade for a living generate annual returns of 100% or better, year after year. There are very few professional funds that generate returns like that year after year.

If you're day trading and especially if you're day trading a very limited number of instruments, using small stop losses makes perfect sense because there are several trading opportunities each day and one or two runners can erase several small losers very quickly.

 

[logic_man]

Quote from jack hershey:

The way trading works is that "pro's" and their ilk are in the market all of the time.

Granted, but let's simplify the model to narrow it to a net short position taken on March 9, 2009, with no stop. If tonyorlando can tell me how that position would be managed by pro who doesn't use stops, I'd appreciate it. Sure, that position could be one of hundreds or even thousands held by the pro in question, in which case it's almost inconsequential what the outcome is, but if that's the case for the typical pro trade on an individual level, why hedge, which he says they do? If the hedges he claims they take on are simply the large number of bets they have on at a given time, that still doesn't get to the individual trade management aspect of managing a portfolio, where the question which needs answering is "What do we do with this open short trade from March 2009, which has a huge unrealized loss and would require the market to crash nearly 50% from here just to break even?"