Are stops a complete joke ?

Quote from zanek:



Anyone have any tips to avoid this ? This is like the 20th time this has happened and is highly annoying and costly. Are stops a lame way to take out relative newbies like myself ???
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You need to place stops only at places which, if hit, will indicate that the trade is almost certainly wrong. Just below support is way too close, it indicates nothing other than the stock might be breaking down, or might be doing a fakeout to gun some stops, wash out weak hands, and then reverse.

So, my recommendation is use wider stops.
 
"That's not true. If your position value is less than your account size, then you can simply sit on the position regardless of how low it goes. For example, I own several stocks, and I have no stop in them. If they all fall to $1 each, I will buy more, and quickly retire off the absurdly high dividend yields I will be receiving at that price."

Did you try that with Enron? Retire off those dividend yields? Stopped out.
 
Quote from bone:

"That's not true. If your position value is less than your account size, then you can simply sit on the position regardless of how low it goes. For example, I own several stocks, and I have no stop in them. If they all fall to $1 each, I will buy more, and quickly retire off the absurdly high dividend yields I will be receiving at that price."

Did you try that with Enron? Retire off those dividend yields? Stopped out.
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Please don't tell me you are this stupid.
 
Quote from kentraderstar:

these bots and HFT traders will take your stops

Trust me. Iam an Algor developer.
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yes they will.

they can see where all orders are at and the # of shares you have sitting on the bid/ask. The algo HFT bots will drive the price down out of no where and will snap up all your shares as they short it and then close out the short side of the trade.

HFT algos can see every order out there.

I always sell my losing trades as quickly as I can but I do not want to go all out and take all the liquidity out there and drive the price down even further.

same with limit orders with trying to hit profit targets of a trade.

If I am long Rimm and want to take profits, Ill scale out with several 100 share orders a while in advance so I am first in line with the ECNs so I get the first best fill.

half of trading is order is execution
 
"Please don't tell me you are this stupid."

Depends if you can recognize the fact that you can buy stocks with an intrinsic value less than your account size, and that the worth of those stocks you purchased can really, really go down, and that fact would indeed change the way you trade. And there are plenty more recent examples than Enron.

Maybe it's semantics for you. If you have $100 in an account, and the $90 worth of GM stock you bought is now worth $1 - even if you don't 'stop out' and keep your GM stock, go ahead and use your remaining $11 worth of net value to buy more GM stock. Maybe you haven't 'stopped out' per se, but your trading behavior with that $11 has certainly changed. That change in net value has changed your trading behavior and changed what you can do in the future with that account - but for the sake of argument you're right, you can say you never actually 'stopped out' in a pyrhic kind of way.
 
Quote from bone:

"Please don't tell me you are this stupid."

Depends if you can recognize the fact that you can buy stocks with an intrinsic value less than your account size, and that the worth of those stocks you purchased can really, really go down, and that fact would indeed change the way you trade. And there are plenty more recent examples than Enron.

Maybe it's semantics for you. If you have $100 in an account, and the $90 worth of GM stock you bought is now worth $1 - even if you don't 'stop out' and keep your GM stock, go ahead and use your remaining $11 worth of net value to buy more GM stock. Maybe you haven't 'stopped out' per se, but your trading behavior with that $11 has certainly changed. That change in net value has changed your trading behavior and changed what you can do in the future with that account - but for the sake of argument you're right, you can say you never actually 'stopped out' in a pyrhic kind of way.
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Well the point is that using a stop is contrary to the whole idea of investing - that the appeal of an asset is proportional to how cheap it is relative to fundamental value. A stop tells you to sell out when the price gets cheaper; investing tells you to exploit the more attractive valuations that are typically on offer when the price gets cheaper. There's nothing pyrrhic about taking advantage of bargains, it is very profitable if you get the business/fundamental analysis right - especially since neither I nor any other serious trader/investor would have 90% of capital in a single stock (especially one with a crap balance sheet, shitty business, massive cyclicality etc). More realistic is a stock allocation to the entire market of maybe 30-70%, and maybe 5-20% at most in a single stock, which leaves plenty of cash, bonds, gold etc which can be partially liquidated and the proceeds ploughed back into the stock market on the occasions where great bargains are on offer.

For investors, stops would ensure that they are always liquidating valuable assets at distressed prices, and thus they don't use them. Their risk control is to analyse very carefully (hence hopefully avoiding Enrons) and to diversify (thus controlling losses when they get the analysis wrong). Yes, sometimes they get it wrong and lose substantial amounts of money. But so do traders, and so do stop-loss orders - just look at the flash crash, or late 2008/early 2009 for examples of where stops inflicted gargantuan losses on people. The fault lies not in the method or technique, but the skill with which it is employed.

Investing and trading based on value, and eschewing the use of stops (because they clash with the whole premise of value), are perfectly reasonable approaches to the markets. Some of the richest people on the planet follow those approaches. Stops are only one method of risk control, they are not the only one available.
 
wow i actually read all of it O_O
iono why JH has such a bad reputation mayB someone can PM me about it heh

but heres my 2c im not tudor or HFT algo so... yea

i think to me personally a lot of what u guys said makes sense
1. u need a stop
2. where u place stop matters
3. no overleveraging
4. big boys have the upper hand

the only thing why i dont ever trade without a stop because heres something to tell me "hey what u thought was wrong"
i dont disagree with the person that said sometimes u gotta guess where u put ur stops.
think about it as a business, is there any legal business that has a sure fire way of knowing exactly how to form a 100% accurate pricing matrix to maximize revenue? a lot of it is from estimation and guess work.
ok fine guess sounds bad, lets give it a better word, an educated guess, a hypothesis.
u have a hypothesis that based on the recent price action that price should not fall under a certain level but if it does ur hypothesis that it was going to go ur way MIGHT not be true after all.

when i get stopped out i question if the trend is going to continue. and if something tells me its going the other way i can take the trade rather than sitting on that lousy trade.

if u dont have a stop, how do u know that ur wrong? if ur waiting for a signal or a clear confirmation that the market is turning to get that in ur head, well for me the loss would be bigger than most of my winning trades. then well thats out of my comfort zone >_>

if u guys have no stops at all let me ask u this, do u have anything to tell u that theres still a chance that the price would still go ur way?
if not then i cant think of another description to fit other than being stubborn.
 
For most of us(?) our analysis is based on price over time.

Since a stop would liquidate our position according to price alone, this makes it contradictory to our analysis; ie "I knew price was going higher but price stopped me out".

Since we are right given time then we should also be wrong given time and this means that we should review the current price action only after a checkpoint has been reached and until then it is irrelevant information.

EXAMPLE:

What is support?

If we look at it in real time then there can be no support because price will likely blow through it before reversing.
Therefore support is a line or an area that may be broken so long as price is above said line at the next checkpoint.

"The MONTHLY SUPPORT is STRONGER(!)" myth:

It is stronger :p, but not in the way that most traders imagine. We are talking about monthly candles here and that means that price can blow through monthly support by HUNDREDS of PIPS so long as it is above support at the next checkpoint (which is further out in time because it is based on some multiple of the monthly chart).

Monthly support DOES NOT mean that price is more likely to stop at an exact price or within a range equivalent to the ranges of your trade chart...assuming it is not a multiple of the monthly chart :D

What are you saying man :confused:

All that I am saying is, to trade without a stop, you simply size your position to withstand the movement of price over time and liquidate your position if it closes below a line/area that you believe it shouldn't.

If price is going higher then price is closing higher.

If price closes lower then how confident can you be that price will move higher?

How is that different from a stop?

For one you are exiting because is it likely that you are wrong and not because you couldn't afford to wait and see your profits materialize.

If your position sizing is initially conservative, there will be an unused portion of your risk% with which you can resize for your second trade and hopefully restore the size and press your wins for a comeback (chip and a chair).

EXAMPLE:

You had 10 lots and 45 pips of space to manage before you lost 25 pips.
If you size your next trade at 4 lots then you will have 50 pips of space to manage without risking any more money than what was set aside for your last trade. (10/4) * 20 = 50, it is always (Starting/Ending) * remaining.

You are right this time and price moves in your favor by 35 pips giving you 85 pips to manage and you decide to liquidate and resize to 7 lots on the next trade with 48 pips of space. (4/7) * 85 = 48.

That trade works out by moving 70 pips in your favor, you have 118p, and spotting an opportunity, you decide to press your win by adjusting to 11 lots and 75p of space.

It can go back and forth with you adjusting larger/smaller but did you see what you did? You worked with a set amount of space, over many trades, the risk of which is equal to your original risk%.

And that is what makes this different from using a stop.
 
if u guys have no stops at all let me ask u this, do u have anything to tell u that theres still a chance that the price would still go ur way?
if not then i cant think of another description to fit other than being stubborn. [/B][/QUOTE]

Yes I am stubborn :D
 
Quote from mcgene4xpro:

if u guys have no stops at all let me ask u this, do u have anything to tell u that theres still a chance that the price would still go ur way?
if not then i cant think of another description to fit other than being stubborn.
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Yes I am stubborn :D [/B][/QUOTE]

When you place a stop you are saying that price is going up unless, at a random point in time, price is at x.

When you trade without a stop you are saying that price is going up unless, at fixed points in time, price is higher than x.

Let us say that we have been trading based on the weekly chart, price has been closing higher with large bodied candles and every bearish candle that has entered the picture has had a small body.

And now lets say that price moves down 160 pips in three hours before returning to its previous levels.

Does the magnitude of the drop have anything to do with the direction of the weekly chart and if so then what is accomplished by trading based on a period of weeks?

A weekly chart does not dictate that you need a larger stop, it dictates the amount of staying power that you need to make it to the next fixed point in time: stops are not synonyms for staying power.
 
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