Daytrading Without Stops

This is a little off topic, but it is also a reason I started this thread. I remember there was a time when Interactive Brokers refused to support any type of trailing stop order. According to their FAQ (at the time), Thomas Peterffy thought that trailing stops were potentially destabilizing to markets. In the right situation, all of these trailing stops would cascade on each other, causing wild market gyrations. The FAQ even mentioned something about him either not trading with stops at all or not with trailing stops (sorry, I can't remember).

I guess subconsciously, I have always wondered about this. Here is this guy who is chairman of IB and he is claiming that these stops are detrimental. If his customers used trailing stops, it would probably generate more commissions for IB and yet he purposefully prohibits the support for a trailing stop order. Now my first reaction was that TP was looney. However, from everything I've heard, TP is one sprsmrt dude (afterall, he is chairman of IB).

Now it is a moot point - IB supports all types of orders including trailing stops. However, the fact that they didn't support these orders on purpose has always intrigued me.
 
Quote from Quiet1:

There is one famous stopless system: Oddball. I believe its long-term profitable is always in the market and never uses stops.

Perhaps its possible to develop systems which don't actually hit their stop for a large percentage of their trades. If you think about it this is the ideal scenario - because your system is a market model and if you can model the market well enough that you don't have to use an arbitrary stoploss then your system is about as robust as they come...

Re LTCM: I believe their problem was over-leverage. The fact that they did not use stoplosses would not have been a problem for them if they had not had positions that were too big. in fact its possible to imagine that there was another group of traders copying LTCM on a much smaller scale who came out of that whole episode making a killing...because they kept their position size well inside the size their capital could cope with.


:D
Q1
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Good points. What you suggest does happen with traders over time.

As a person gets to a place where he can trade a market, several things unfold:

making money keeps him in the market almost all the time. stopsare not part of staying in the market and just get to a minor conscious protection routine. The LTCM strategy failure issue of not handling maximum capital limitations also comes into the picture. As you utilize a continuous profit money velocity optimization effort, you are defintiely and profoundly limited by the capital you are moving relative to the size of the market money velocity.

several people in this thread directly and indirectly deal with these three items. In particular lazyplum addresses what it is like for aperson who is getting close to separating stops and making money. you see most people have, unfortunately forged inflexible relations among price stops and targets.
It is very difficult to undo this stuff to get to and optimization strategies. The IB experience is related to how diffrent practitioners come into relationships. Once you are on a level of continuous (whollistic approaches) market participation, you would not, if you then when into the broker stuff hold formal stops as a basic component of your services. To do business it turns out to be very necessary ( IB can across for the public) since most traders are "edge" oriented instead of moving to a wholistic understanding and continuous participation which is where optimization takes you. "edginess" is a set up mentality; therefore recognizing set upssomehow becomes a high priority pastime and this make having stops very very important because all set ups are mistakenly based on the efficacy of prediction. this is where all the R/R stuff comes from and why it is interposed all the time in people's comments.

It is very very difficult for traders to "share" decisions with the market as you are seeing in this thread. "Edge" attitudes inherently contain "control" and "control freakiness" leanings.

All of these mechanisms people use, in fact, set up serious roadblocks for progressing in iterative refinements. to have to suspend, even if temporarily, "fixes" that are required as compensations for weaknesses in approaches is one difficult exercise.

Wizards is always a great place to go because a lot of them have foregone getting stuck in any particular place. Looking at it from an inside/ outside viewpoint is a real wake up devise.

If you are inside the wizard relm and you look at those who persist in staying outside, you see so many advantages of being inside and not any advantage to seeing changes in how outside guys do it. alomost all the price movment canbe accounted for in looking at the practices of the Edge folk. The set ups come down the line and each group does it's thing. to be optimizing to try to consistently be onthe right side of the market always puts you in a place where the Edgers "push" your profits since they are coatailing you. You are constantly forced away from your protection it turns out.

It takes more than one strategy to be on the right side of the market continually. The P, V relation exemplifies a whollistic verification of this fundament requirement.

Thanks for reading all the way through this.
 
Quote from bubba7:



Good points. What you suggest does happen with traders over time.

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Thanks for reading all the way through this.
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Are you related to harrytrader? Everytime I read a post by harrytrader or you (bubba7) I probably understand 10% of it. I'll strive to get better.
 
Quote from funky:

http://www.themasteryoftrading.com/Articles/Stopping.html
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This is a good article. I suppose it comes down to how many large loss days you would experience when trading a stopless system. And even if you suffered large loss days, maybe the profits gained or losses minimized by waiting for a retracement in your favor would make up for them.

Here is another stopless system (although this isn't necessarily a daytrading system). Suppose you are trading SPY and you consider $100/share to be a psychologically important level. Suppose SPY hasn't come close to $100 in a long time but then ends up breaking through that level on an upside surge. A potential method might be to short SPY as it continues to go up with a target of $100 to cover. You have no stop. You are simply waiting for SPY to return to $100 to cover because $100 is an attractor. Now you would only do this type of trade if certain criteria were met, such as the rise over $100 was *not* breaking out of a good base. If you want to protect yourself from catastrophic failure, you could put a hard stop at $110. You are simply betting that there are a ton of stops at $99.99 and that those stops will eventually be hit.
 
bubba7,

Though I do agree we what you are writing...

Always-in-the-market systems are very different from day trading, they have different principals and different rules. Therefore, comparing Always-in-the-market system principals to day trading strategies is basically wrong.

TM Trader
 
Quote from TMTrader:

bubba7,

Though I do agree we what you are writing...

Always-in-the-market systems are very different from day trading, they have different principals and different rules. Therefore, comparing Always-in-the-market system principals to day trading strategies is basically wrong.

TM Trader
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Adjust your orientation. This thread is an intraday trading thread as far as I am concerned.

What you are suggesting is not on the table.


My comments are focused on intraday trading and while the market is open, trading with an efficiency that keeps you in the market at nearly all times.

There are three extrpolations that traders make to get to optimum. Others introduced them and I agree with these end point optimum operating points.

1. stops and trading Making money) are separate and stops are only carried for protection.
2. continuous intraday trading is the norm for highly efficient money making velocities and the strategy is to continue on the "right" side of the market and pull profits as the trades progress. Usually one of two overlapping strategies is in effect and the one uesed is verified by he P, V relation.
3. There are capital limitations that the market imposes for highly optimized continuous high money velocity intraday trading.


What it comes down to is having a small box with little red cards in it. The cards simply have names of flaws that occur in an otherwise orderly market.

You monitor. You see a flaw. If you wish, you pick up the flaw card, turn it over and follow the simple singular direction.

Separate from this you keep a stop log. On the log your entries of potential stop values flow along and they slip out of the picture as time passes. While they are in the picture they matter and one is circled for use at all times. Your C&R regime is dedicated to a simple periodicity given to you by the market. You perform the C&R as dictated by the market and it is independant of your KISS trading that continues to make money all the time. You do not fix ever anything that is not busted. You only fix your money making when a flaw comes up and the solution to fixing the flaw is prescriptive.

When people use stops as part of their strategy to make money, it is simply a replacement for a part of an incomplete strategy.

If people enter a trade and loose money, it is simply because they do not recognize when they have done something incorrectly. When you enter a trade with an expectation that you thought up, you have simply usurped the market'sjob that it does for you. you can cont on following up this wrong with another wrong, like holding for example to make things right. At some point people learn that prescribing is bullshit and they learn that when they make a mistake they must go out flat or better. Doing one flat trade a day is a manditory requirement for getting rich.

The most important cards in the flaw box, have the words "change sides" written on the back of the flaw card. This is an instruction to take profits and begin another trade to make profits based upon advice being given to you from the market.

I have lowered my typing level on this post; it may be: more readable; make more sense; be repititionous enough; or all of the above.

It is not arrogant, condescending, making anyone look ignorant or anything else that is inappropriate.

You also happen to be incorrect about the comparison possibilities. The basic reason you are incorrect is that when you are making really punchy comparisons that get to fundamentals and basics, you wind up in a fairly universal place where all the BS caveats have been shed. Thus, things work similarly on all fractals. The prima facia margin requirement vis a vis risk is countered quite admirably by high reward plays based on flawless interim conditions prevailing or, almost invariably, the market dictates a strategy switch to intercept the pending risk and turn it to a reward when and if that condition arises.
 
Quote from harrytrader:

Mr Market is not speaking about trading but about investment ! In investment framework having no stop can be intelligent. But in trading futures no stop is a really dangerous idea.

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*******
Day trading without stops might work if you trade so small to be in danger of sleeping:eek: and have unlimited capital.

:)

*******

'Discretion shall preserve you ''- Solomon,trader king
 
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