Challenging an old adage- tightening stops

Gordon Gekko.. the point is in general when making a trading system or plan.. discretionary based or systematic.. do not tighten stops, preferably keep stop constant or even loosen when its a runner. To each trader than can mean a different thing. Paper trade your plan for a while and see if it would make any sense in your own case. But as a rule of thumb keep stops constant and never tighten because those few monster trades that you nail will make your year.



--MIKE
 
I think it depends on what kind of trader you are -- trend or bottom/top picker -- or depending upon the trade, both even. Some people only try to pick bottoms/tops since they are uncomfortable with wide stops, others go for the meat of the move but must sit through wider drawdowns.

I think it would only make sense "theoretically" to widen the stop if your entry was an attempt to pick a bottom, and, in having done so, now you've decided to shift gears and play for the longer term trend as well, which would require a wider stop range to sit through the drawdowns a larger move would see. To hit home runs you run the higher risk of seeing many a good open profit turn into mediocre or disappear altogether (not everyday will be like yesterday :)) , and that's another question the trader will have to ask himself if he is comfortable with.
 
Originally posted by DeepHindsight


This is the exact problem with the 2*ATR stop you suggested. It is NOT constant throughout the trade. Assuming you enter near the start of the trend, it will be tight due to the consolidating market preceding the range expansion(not necessarily a bad thing -- it is lower risk). Then near the possible end of the trend, when it hits the first or subsequent consolidation phase it tightens too much once again. The only way i can think of offhand is to ratchet up the ATR constant so it doesn't get knocked out that easily as you have profits to work with ....

DH
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This is pure 100% bull. Stick to doing the research and let the traders trade.

You make no sense. ATR is not supposed to be constant its supposed to adjust to volatility.. sometimes it works perfectly giving you a huge chunk of the trend.. sometimes it screws you over and gets you out early. Rule of thumb never tinker and screw around with them... either use the same one always and only possibly increase it when you have a hot trade. NEVER have the mentality of playing around with your exits.. based on stupidity or gut feel or even intuition.

I have been using ATR's as stops for years and it has worked great.. ( read about van tharps random system using ATR's) .. i know other traders that use ATR and they are profitable.

--MIKE
 
Originally posted by illiquid
To hit home runs you run the higher risk of seeing many a good open profit turn into mediocre or disappear altogether
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I disagree here completely... The risk of good open profits turning into mediocre gain or disappear.. is purely psychological. Classic fearing that your stock will lose its gains is not a good premise to trade on. In the long run.. i mean after houndreds of trades.. you will probably be better off letting them run.

Just one real life example.. I had a friend that was trading and averaging 50/50.. churning and burning. Not going anywhere... and frustraded. He was a position trader and bought NVR back in the houndreds on a break. He rode this monster all the way up and made an absolute killing. Although his style was position trading and many others are swing or daytraders.. the moral is... that one elevator my friend rode... took him to his retirement, bought him a new house and car.

That trade in itself defines what trading is supposed to be all about. Limited risk unlimited reward. Read about the greatest traders of all time in Market Wizards.. notice how most of them had one big trade that made them rich... Brian Gelber, Kovner, Marcus.. all had some huger winners that set them for life. If you are a scalper what I am saying is irrelevant.

Sometimes concepts... are not comfortable for you because you just dont understand them.


--MIKE
 
Originally posted by Trend Fader



I disagree here completely... The risk of good open profits turning into mediocre gain or disappear.. is purely psychological.

Sometimes concepts... are not comfortable for you because you just dont understand them.


--MIKE
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You really have a way with words, guy. You sound like you already know exactly how things should be done, why pretend you want to discuss anything and just say you want to "tell it like it is"? :)

Mike, all I meant was that a trader who widens his stops and goes for home runs will definitely run into letting more profitable trades go back to zero -- it's the fact of life that your percentage number of winners will go down in exchange for bigger gains/trade. Whether or not to go for home runs as the road to riches is a completely different story altogether.
 
Originally posted by Trend Fader


That trade in itself defines what trading is supposed to be all about. Limited risk unlimited reward. Read about the greatest traders of all time in Market Wizards.. notice how most of them had one big trade that made them rich... Brian Gelber, Kovner, Marcus.. all had some huger winners that set them for life. If you are a scalper what I am saying is irrelevant.


--MIKE
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I could just have easily cited Paul Tudor Jones, Marty Schwartz, Linda Raschke etc and say "notice how they all made it big playing the short term/not playing for the big trends" -- there's no one way to do things. Looking for one big trade to set you up for life sounds like more like an investment; in any case there are all shades inbetween, a scalper can have his own home runs as well.
 
lighten up mike.. my experience tells me that whatever the individual is truly comfortable with will work as long as it has a slight edge (ie. winners:losers 2:1) and is CONSISTENT. consistency is where the comfort zone is necessary.. the only way to stay on track is if it feels right. either way, these are people asking opinions and offering theirs- nothing to get upset about.
 
Guys, I apolagize for being a bit flippant and harsh in my replies.. no hard feelings.

I just got annoyed on the thread when someone starts claiming that ATR has "problems".. and should be tinkered with for each trade because its not "ideal". THat brought a flashback of the stuff I used to do when I lost money. I guess it kinda hit a nerve..



--MIKE
 
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