I used mental stop with a small size. the problem with hard stop in day trading is can not filter out those little dancing move, often you may enter a little bit early or late, not exactly, you may get stopped out. I think hard stop is a good tool to manage risk, but should not be overused. good for breakout trading, news trading. in normal market situation, hard stop hurts.
CL Redux
- Thread starter schizo
- Start date
I have no problem with getting stopped out with a small loss or at b/e because I can easily follow up with another trade. But if I used a mental stop or a very wide disaster stop and took a serious loss ($600-$1000) on a sudden rogue move (and CL is very capable of that), then psychologically I'm in a bad space and start thinking about revenge trading to "get it back".
Today my trade was short @ 86.85, stop @ 86.96. Once 9 ticks profit showed I quickly moved my stop to b/e and was stopped out for the small cost of commission. Had I not been interrupted I would've re-entered the trade at the same price on the failure to break through resistance, and placed the same stop. When price moved in my favor I would've moved my stop to b/e again. The second move down actually reached the price that was my initial target.
Now, if I hadn't moved my stop to b/e and price moved that one extra tick above the previous high, I would've had a $115.50 hole to climb out of. If I'd taken the re-entry trade and it hit my profit target, I would've made $164.50, for a net gain on both trades of $49. By stopping out b/e, then re-entering, I have no hole to climb out of, and I end up with a net profit of $159. This makes more sense to me trading CL, because basically the way I trade, if the trade moves in my favor pretty quickly, I'm not letting it turn into a loser, when I can always get back in. CL tends to have "weight" off a lower high, and "lift" off a higher low. It's too volatile for me to play around with unnecessary losses. This is strictly from a day trading POV. I think overnights and swing trades are a very different animal.
I've been documenting this and it is in fact very, very true, and yet every time I'm in a trade I start overthinking, I want to grab profits quickly, I lose trust in what I've observed again and again. It's like a form of mental illness. :eek:
I did have an instance recently where I had an ES trade move 4 pts my way and I moved my initial stop to a tick above the 50% retracement price, figuring that would indicate to me the opposing side wanted it more. I patiently watched price move all the way back to my stop and all I could do at that point was re-evaluate the price action. I got right back in and took 3 pts, I think, but I definitely regretted not snaring some of that initial move.
Again, trading 1 lot seems to constrain me mentally; 2 lots allows a lot more flexibility in letting winners run, because when you've taken $100-$200 off a trade, you don't feel so bad if the rest is stopped out even.
Let's also not forget the reason why most traders refuse to use a hard stop in the first place is because they lack the will power to press that damn sell button. Ironically, it is for that very reason why hard stop was designed.
The last thing a day trader needs is inaction. you can't afford to trade on a whim. Nothing should be left to chances, stops included.
The last thing a day trader needs is inaction. you can't afford to trade on a whim. Nothing should be left to chances, stops included.
I agree 100%. In the past when I've used no stop or placed a huge disaster stop, it's because I really didn't have a strong technical setup; I was in state of sloppiness and uncertainty, and I'd THINK price was DUE to go a certain direction, and I figured why not get in now ("at least I'm trading instead of doing nothing!"), and if moves against me, I'll just add to the position, or I'll have this disaster stop at a place where price will NEVER go.
I assure you from experience that when price suddenly goes where price has never gone before, or when your disaster stop that seemed completely out of reach is about to be reached, you are no longer in a state of mind to make calm rational reasonable decisions.
The branches of military train you to plan in advance for as many contingencies as possible, and train you to react to them quickly and without second-guessing. I realize trading is much like battle in that you are waging a war against those who took the other side of your trade, and if that side suddenly overpowers you in the heat of battle, you better have your plan already laid out and trust in it.
Despite the fact that many of my most profitable CL sim trades were the result of choosing a zone to average into instead of a specific price level, and placing a wide disaster stop, my account which I'm trading for a living, not for fun, is too small to take that kind of risk right now.
great point. I am struggling with hard stop loss and mental stop loss. I told myself many times I must use it. but my old me still objects to it. I totally accepted your point. I will use hard stop from tomorrow. I do not know how to get used to it since no-one is policing my trading activity.
IMHO, using a hard stop loss forces you to master the fine art of pure technical trading, which usually results in consistent profitable trading. To trade profitably on a regular basis, you must have the odds in your favor and take all strong setups (picking and choosing from among your strong setups each day doesn't work; it's either a strong setup and you're in immediately or it's not a strong setup; still my biggest defect). Having the odds in your favor is simply a matter of finding setups that result in a particular move more than 50% of the time and then trade with a risk:reward ratio greater than 1:1.
Day trading and swing trading require that you learn to trade technically valid setups with stops placed at invalidation points. I shorted CL today because it double-topped on my 3-min chart @ 86.95, which was a lower high than the high of the day (HOD) made only 30 minutes previously, and that HOD sold off over 50 ticks very quickly, and found support at a lower low (possible reversal setup if price fails to break out again). This suggested very strong resistance at the current HOD, and significant resistance at the doubly-failed lower high (86.95). If buyers managed to push price back up through that level, my short setup is no longer valid (if it makes a lower high, it should make a lower low, or at the very least, test the previous low). That's why I want a stop loss at that level. I can always get back in and I want a small hole to climb out of, not a large one.
It meant I would add to the position at 87.00
what factors contribute to that strategy?
When I canât pinpoint an entry Iâll take a trade in a defined zone. I just look at the RR and see if its still acceptable.
Some people follow their rules, I go on the number of reasons. Many times you get caught up on one idea/observation and take a trade because of it. I found that when I forced myself to list the reasons I not only evaluated the trade more clearly, I had more confidence in the setup.
So I make this quick list on a piece of paper (In my own shorthand), it takes about 10s and some time to evaluate it again. I found that if I could list 6 reasons the trades would work out well. Most reasons are evident before hand and a couple may become clear closer to entry.
Sometimes all these signals line up perfectly and everything is very clear on the chart. In that situation. I would average in and load the trade.
You should start on your bread and butter setups and still sim the other setups. When you have some profits to risk and high confidence in the setup give it a go. Have your check list for the setup clearly defined so emotions donât take over.
When your arsenal of trades include some home run setups, I found that emotions take over and that you will go more for the home runs, so aim small miss small
I see you said similar things in your last post
I suppose the sage words from the Tao can be applied to trading:
The tao that can be told
is not the eternal Tao
The name that can be named
is not the eternal Name.
The unnamable is the eternally real.
Naming is the origin
of all particular things.
Free from desire, you realize the mystery.
Caught in desire, you see only the manifestations.
Yet mystery and manifestations
arise from the same source.
This source is called darkness.
Darkness within darkness.
The gateway to all understanding.
The tao that can be told
is not the eternal Tao
The name that can be named
is not the eternal Name.
The unnamable is the eternally real.
Naming is the origin
of all particular things.
Free from desire, you realize the mystery.
Caught in desire, you see only the manifestations.
Yet mystery and manifestations
arise from the same source.
This source is called darkness.
Darkness within darkness.
The gateway to all understanding.