Sorry, I didn't realize you believe these March 2009 shorts are still being held and hedged.
Are stops a complete joke ?
- Thread starter zanek
- Start date
Sorry, I didn't realize you believe these March 2009 shorts are still being held and hedged.
A retrace in one time frame is a reversal in another. What an inexperienced short term retail trader tends to do is switch time frames when a trade doesn't act the way they expected it to, based on their opinion of what price should do. This is often considered a viable strategy by inexperienced traders, because it allows them to feel "right" as long as they haven't closed out or stopped out of a trade, which would be admitting defeat.
Such a trader initiates a position based on, say, a 5-min chart and price runs against them beyond the point where, on a 5-min chart, a reversal is now indicated. But on a 60-min chart, price is still contained in what might simply be a retrace, so the trader moves the stop or uses no stop, and holds the position, sometimes even adding to it.
Then if price gets to the point where, on the 60-min chart it's indicated that it's time for the trader to exit the position they're holding because this is a reversal, not a retrace, the trader whose big ego wants to badly to be "right" looks at a daily chart, and so it goes until an uncle point is finally reached and the trader throws in the towel for a large loss, when in fact, in the original 5-min time frame, a very small loss could've been realized and the position reversed for a very large profit.
What can be more dangerous is price eventually runs back in the trader's favor, allowing the trader to escape near break even, or maybe with a small profit. There, see! That's just proof at how stupid it is to use stops, because the trader would've been taken out of a trade for a loss, when the trader KNEW it was going to be profitable at some point. This compels such a trader to use no stops because price ALWAYS does "X".
I've been in this situation many times and every one of my large losses was the result of hold and hope well beyond the point that a retrace had become a reversal through one time frame after another.
If my account was large enough I imagine I could just hold and hold every position I ever take until it finally works. But I realized it's not about being right, it's about making a living.
blah blah
no one ever made money getting stopped out.
it's not the SIZE of your stop, it's where you place it ..
no one ever made money getting stopped out.
it's not the SIZE of your stop, it's where you place it ..
Stops are the most ridiculous invention ever created for under-capitalized retail traders.
Hmmmph... undercapitalized and retail... now that's a hilarious fail.
I have given so much to the god of stop that I seriously could've bankrolled a small Nicaraguan army with all the 5-10K accounts I widdled down.
Hmmmph... undercapitalized and retail... now that's a hilarious fail.
I have given so much to the god of stop that I seriously could've bankrolled a small Nicaraguan army with all the 5-10K accounts I widdled down.
If you "widdled down" your accounts because your initial stops got hit too often, then you need to learn how to trade. If it happened because you moved your initial stops before price reached your your minimum profit target zone, then you need enough capital in your account to get over your fear; you're cutting your winners and letting your losers hit full stop.
According to tonyorlando's logic ("pros don't use stops, they hedge") why wouldn't they be? And if they aren't, what, other than some type of stop or the hedging by acquisition of a equivalent upside-oriented instrument, was the catalyst for the closing/hedging of those trades? Did they close or hedge them in July 2009, after the "failed H&S"? If so, how is that not a price-based stop? Did they close or hedge them at the end of 2009? If so, isn't that a time-based stop? And how is hedging (a.k.a. locking in a specific loss amount) different from being stopped out with a specific loss? Now we are in the realm of semantics, which is what I initially thought when I read to's post to begin with, i.e. the guy wanted to say something relatively controversial with absolutely no backup behind it.
The situation is a simple either-or. Either these pros had a realization that a short trade taken on that date was going to be a loser, perhaps forever, and covered the short/hedged it with a long to "stop the bleeding", or they still have it open and are waiting for the March 2009 lows to be broken.
I'm not the one who made the original claim and I don't "believe" anything beyond what was implied by tonyorlando's original post. I admitted the example was "extreme", but I don't think it is an example which is contrary to anything originally stated about pros' trading methods.
I read in one book (whoops, I guess that makes me a book reading maestro) that a good rule of thumb is that your INITIAL stop should only get hit on around 10% of your losing trades. The other 90% of your losing trades, you should be able to move your stop in your favor. Seems reasonable to me.
One way you can avoid this dilemma is by booking a fixed loss of say 30% on your position once your comfort level / stop is breached and then be watchful for reversals and enter back adding that 30% again as it reverses back up, overall your trade will be profitable without the pain of you seeing it hit your stop on full size and then reversing. If it doesn't reverse, get out immediately. Even then your overall losing exit will be at a better price then if done by taking a full hit on your size.
BTW placing stops just below clearly defined s/r's is a fool's game no matter what the books say designed to remove you from your perfectly planned position.
Best,
Max