Birth of a trader

[NoDoji]

Quote from frank8800:

The 5 minute chart has more risk associated with it then the 1 minute chart I used to trade, and now I'm thinking I may need to increase my stop to stay in trades longer. That 2 bar reversal is a good example. It was a nice setup and a 30 tick winner, but it would have stopped me out had I taken it.

What's your philosophy on stops? Fixed, or situation dependant?

A stop needs to be survivable. That means if you're trading a with-trend pivot off a pullback, or counter-tend off a first higher low or lower high, the stop needs to be outside the pivot point; if you're trading pure counter-trend at what appears to be an exhaustion point, the stop needs to be just outside the new high or low that was put in. If you average into trades based on an eventual reversion to mean, you need some kind of disaster stop to protect your account.

My personal rules, based on always having a hard stop, are:

1. If a survivable stop is 15 ticks or closer to my entry, the setup is fully qualified and my stop will be 16 ticks or less, just outside the pivot point.

2. If a survivable stop is greater than 15 ticks, I generally choose not to put on the trade, unless the setup is such that the R:R is really favorable.

3. If I want to join a strong move-in-progress, I quickly reference the 1-min chart for a micro-pullback and use the 1-min pullback pivot point as my stop. An example of this would be when price broke down near the NYMEX close. You see the 2:24pm ET bar on the 1-min chart retraces over 20 ticks off the new low as bottom pickers step in, so as soon as price stalls and resumes a few ticks, you could short the close of the 2:25pm bar (80.44) with a stop above the high of that bar (80.54). Or you could short the breakout of the pullback bar (short @ 80.29), with a very quick exit if the b/o fails. You can see most of this micro price action right on the DOM if you use one.

Quote from FirstDegree:

It's also possible that I'm getting confused by the failed failure failing, as in any range we could really go with a failed failed failure failing that failed.

MODERATORS: If there's not a prohibition against this kind of language on ET, there needs to be one right now!

Quote from Picaso:

that way you can trade with ridiculously tight stops (ask Nodoji about her 5-lot counter-trend specials ).

There are indeed times when maybe I need a sanity clause

 

[FirstDegree]

Quote from frank8800:

Dude ... I'm no roll model. If something I do doesn't make any sense to you, there's probably a good reason for it. Maybe it was a dumb trade. I'm doing the best I can with what I've got.

What I am sure of is that I feel this. Trading is what I want to do. I'm sure it'll be many, many more months and perhaps years as well as thousands of dollars in losses before I'm consistently profitable to the degree I want. I'm OK with that.

I wasn't attacking you or anything, just having a friendly discussion. I have a lot to learn and I think joining these discussions is a good chance to get more chart time, add to my trading knowledge, and talk back and forth about ideas. Everyone's trading style is different. You're on your way to success just opening up your mind to these discussions and to new ideas.

Quote from NoDoji:

MODERATORS: If there's not a prohibition against this kind of language on ET, there needs to be one right now!

Come on now, I understood it!

 

[frank8800]

Not much to report today. I was having some bad internet issues early this morning. I run NT and TOS side by side, and both were crapping out on me so I knew the problem was somewhere in my office.

Trade #1

Price moving sideways under the EMA with the recent morning trend down. This was the same trade I was afraid of yesterday, so instead of trying to catch it on the downside, I placed a stop at 80.95 after the lower high at 05:45 which was 2 ticks below the open of that bar. Got filled at 05:50 then lost my internet connection. It came back a minute later and I was stopped out with a gain. +20 ticks.

Being in the market without an internet connection spooked me, so I switched to sim.

Trade #2
Entered a short stop order 2 ticks below the 06:15 bar, was filled and caught most of that bar down. +16 ticks.

After this, my connection became so unstable that I gave up. I had rebooted everything that ran on electricity in my office, but no luck. I think I missed the whole 07:40 bar. It was around 10am PST when it looked like I was back up, but I just watched after that.

My first trade today made me realize that I don't really understand my trailing stop strategy. What I think it should be doing is moving me to BE +1 when I get 8 ticks (which it does), then move me to +10 ticks when I have +15 (which it does), and to +15 when I have +20 ticks (which it does). What I don't understand is how I ended up with a 20 tick trade when my target was set to 25 ticks. In order to get my stop moved to 20, it had to hit 25, and I should have been filled and out at 25 ticks.

With the discussion on stops yesterday, and Picaso's explanation of ATR ranges on the CL thread today, it really got me thinking (thanks Picaso) about a better, more dynamic way to play this.

 

[Picaso]

Quote from frank8800:

Got filled at 05:50 then lost my internet connection. It came back a minute later and I was stopped out with a gain. +20 ticks.

...

My first trade today made me realize that I don't really understand my trailing stop strategy. What I think it should be doing is moving me to BE +1 when I get 8 ticks (which it does), then move me to +10 ticks when I have +15 (which it does), and to +15 when I have +20 ticks (which it does). What I don't understand is how I ended up with a 20 tick trade when my target was set to 25 ticks. In order to get my stop moved to 20, it had to hit 25, and I should have been filled and out at 25 ticks.

(Yes, you're missing a bar: right-click on chart > Reload all historic data)

Tools>Options>Strategies>ATM tab: depending on whether "Use last price for auto trail and auto breakeven" (last price as opposed to bid for longs and ask for shorts; i.e. "last price" trails more aggressively) is selected or not, you will see different behavior in your trailing stops; this would go almost unnoticed in the ES, for example, but in the CL the spread can widen a few ticks easily, which would account for that difference. However, it was likely due to losing your internet connection (see if your provider offers ADSL routers with 3G backup).

Ninja's ATM strategies are great for learning and understanding stops, trailing, backfill, etc. as well as for overnight positions (or positions that you cannot baby-sit). My experience (which may differ from yours, of course) is that it's best to manage them by hand - according to a pre-established plan, though.

 

[frank8800]

Quote from Picaso:


Tools>Options>Strategies>ATM tab: depending on whether "Use last price for auto trail and auto breakeven" (last price as opposed to bid for longs and ask for shorts; i.e. "last price" trails more aggressively) is selected or not, you will see different behavior in your trailing stops; this would go almost unnoticed in the ES, for example, but in the CL the spread can widen a few ticks easily, which would account for that difference. However, it was likely due to losing your internet connection (see if your provider offers ADSL routers with 3G backup).

Ninja's ATM strategies are great for learning and understanding stops, trailing, backfill, etc. as well as for overnight positions (or positions that you cannot baby-sit). My experience (which may differ from yours, of course) is that it's best to manage them by hand - according to a pre-established plan, though.

Thanks again for the tips. My goal would be to handle my stops manually, but I really hate seeing 20 ticks evaporate to BE+1. The cost for that smaller trade is missing on bigger moves.

Need more experience...

 

[NoDoji]

Quote from frank8800:

My first trade today made me realize that I don't really understand my trailing stop strategy. What I think it should be doing is moving me to BE +1 when I get 8 ticks (which it does), then move me to +10 ticks when I have +15 (which it does), and to +15 when I have +20 ticks (which it does). What I don't understand is how I ended up with a 20 tick trade when my target was set to 25 ticks. In order to get my stop moved to 20, it had to hit 25, and I should have been filled and out at 25 ticks.

IMHO, the stop management strategy you describe here will frequently limit your profits, keep you from capturing nearly all 40-100 tick moves and skew any positive R:R you may have.

There are times where it's important to shift mentally, though, and where taking 10-15 tick profits makes sense (such as when using a 1-min chart to trade ranges or channels). I've been unable to shift gears this way because I'm so conditioned to shoot for minimum 20-tick profits and to avoid trailing stops too close (except in certain momentum/breakout setups). The downside of that is days like today where I didn't actively start trading until the big inventory move was over, and had 8 break even trades on the day. The upside is the 100-200 tick days. I'll take a b/e day anytime in exchange for days where my conditioning pays off like last Thursday and Friday.

I think in the long run a strong R:R will pay the bills. If you use a 10-15 tick initial stop, you want a 15+ tick min target and I'll venture to guess that your stop strategy will result in mostly 10-15 tick profits.

When I first started trading CL, I was handling stops almost exactly like your method and a few of the Redux boys told me it wouldn't work, CL's too volatile and I should learn to let my winners run.

 

[frank8800]

Quote from NoDoji:

IMHO, the stop management strategy you describe here will frequently limit your profits, keep you from capturing nearly all 40-100 tick moves and skew any positive R:R you may have.


I think in the long run a strong R:R will pay the bills. If you use a 10-15 tick initial stop, you want a 15+ tick min target and I'll venture to guess that your stop strategy will result in mostly 10-15 tick profits.

When I first started trading CL, I was handling stops almost exactly like your method and a few of the Redux boys told me it wouldn't work, CL's too volatile and I should learn to let my winners run.

I try to target 25 ticks, but I think you're right - the auto trail strategy is keeping me from target in all but the strongest runs.

Will do things differently tomorrow.

 

[pamsez10]

Hi Frank,

I am new to your thread and hope I can constructively add to the great feedback you are already getting.

I have been trading for a while, but found myself confounded with the volatility in Crude Oil futures. I gravitated there as the daily ranges and size of intraday swings appealed to me, ie., opportunity! However, how to trade it w/o getting chopped up was tough.

I know from my experience that I need lots of familiarity with a market (price action, volume signature, etc.) before I reach a 'comfort zone' from which I can reliably and consistently trade. Maybe others do not need this, but I do. I spent lots of time in front of my screens trying to make heads or tails out of the wild action. Eventually I developed the necessary familiarity to trade it with a measure of confidence.

I don't know what will be right for you but you might try observing congestion areas and trend action for behavior. As has been mentioned, fixed targets, much less fixed stop-losses will not work in your favor with crude futures. I find recognizable patterns/behavior in the sharp 'trend' moves that repeat time and time again.

I hope this helps you.

Cheers!

 

[NoDoji]

Quote from pamsez10:

much less fixed stop-losses

How do you manage your risk without a fixed stop loss. Do you average down, move stops depending on what you think price will do next, or use mental stops?

If you use mental stops how would you manage a hypothetical max risk of 20 ticks if, say, price moved 40 or more ticks against you before you could react to close the position?

 

[pamsez10]

I always trade with stops in place, as soon as I receive a fill I enter a stop. Then depending on what develops I adjust the stop. If in profit, to breakeven then trailing prices; if losing, the stop generally is hit prior to my deciding the trade isn't working.

I never add to a loser.

There have been instances when price blasted past my level before I could establish a stop. It has happened before and no doubt will again. I can only deal with each circumstance.