ES Journal Archive (2006 - 2008)

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Quote from OldTrader:

Putting on a small short in ES at 1398.25. Initial stop of 15 points at 1413.25.

OldTrader
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Nothing especially pretty about this trade. I was early. But closed up a little. Maintaining stop at the same level.....1413.25...for now. And for what it's worth, normally at night I cancel stops. I put them back in after the RTH opening.

I'm guessing we need to have some additional upside attempts. But we'll see on that. We have a bunch of news out tomorrow, to include an inflation report.

OldTrader
 
Quote from LondonUSTrader:

Tight stops in the ES are usually the quickest route to death from a 1000 cuts...

I tend to use fairly wide stops, but I think that is necessary to give the market room to breathe.
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I agree. Remember that old saying "You can't go bear hunting with a switch". I take that to mean, to get on board a good move you have to at least give your position some room to operate. If you try to finesse your entry too much, you'll end up missing the big moves. If it bothers you to use a wide stop, then I'd say reduce your size.

Because you use a wide stop doesn't mean you can't get out if something changed about your trade and the reasoning behind it. You don't necessarily have to wait for the stop.

OldTrader
 
Quote from OldTrader:

I agree. Remember that old saying "You can't go bear hunting with a switch". I take that to mean, to get on board a good move you have to at least give your position some room to operate. If you try to finesse your entry too much, you'll end up missing the big moves. If it bothers you to use a wide stop, then I'd say reduce your size.

Because you use a wide stop doesn't mean you can't get out if something changed about your trade and the reasoning behind it. You don't necessarily have to wait for the stop.

OldTrader
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I should clarify this by saying that I think there are two good methods of placing stops. First, a wide fail safe or emergency stop which is a long way away from the market and rarely if ever gets hit. This is more like an insurance policy against an unexpected event and 9/10 times your position will be closed before it gets hit. Second, to base your stop on current market conditions. This is often a tighter stop than the fail safe stop, but when it is hit 9/10 times it indicates your position was clearly wrong. As such it will usually get hit more often than a fail safe stop. I opt for the second approach as I like to base my methodology on current market conditions. This year my intraday stops on the ES have ranged from 2.5 to 9 points, depending on the current market conditions, with an average of 5 points. The reason I prefer this approach is because the market is different every day. Some days it makes sense to have a tight stop, other days the stops need to be wide when there is high volatility. A very important point here is that when there are significant changes in volatility those trading with tight fixed stops tend to get killed. That is why, IMHO, it is better to use a wide stop or a stop that adjusts for current volatility. I am sure the increased volatility in 2008 killed many trading with tight fixed stops even though those tight fixed stops may have worked well during 2004-2007.
 
Quote from LondonUSTrader:

I should clarify this by saying that I think there are two good methods of placing stops. First, a wide fail safe or emergency stop which is a long way away from the market and rarely if ever gets hit. This is more like an insurance policy against an unexpected event and 9/10 times your position will be closed before it gets hit. Second, to base your stop on current market conditions. This is often a tighter stop than the fail safe stop, but when it is hit 9/10 times it indicates your position was clearly wrong. As such it will usually get hit more often than a fail safe stop. I opt for the second approach as I like to base my methodology on current market conditions. This year my intraday stops on the ES have ranged from 2.5 to 9 points, depending on the current market conditions, with an average of 5 points. The reason I prefer this approach is because the market is different every day. Some days it makes sense to have a tight stop, other days the stops need to be wide when there is high volatility. A very important point here is that when there are significant changes in volatility those trading with tight fixed stops tend to get killed. That is why, IMHO, it is better to use a wide stop or a stop that adjusts for current volatility. I am sure the increased volatility in 2008 killed many trading with tight fixed stops even though those tight fixed stops may have worked well during 2004-2007.
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Very interesting LonUST
.
How do you gauge from one day to the next what the volatility will be and therefore what depth of stop you will apply.

regards
f9
 
Quote from fearless9:

Very interesting LonUST
.
How do you gauge from one day to the next what the volatility will be and therefore what depth of stop you will apply.

regards
f9
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You don't. You base it on the current volatility on any day. And you don't know that until you see how the market is trading on that day. Anything can happen on any day.

By the way, when I started trading the ES it was with tight fixed stops, 1-2 points. I discovered that was sub optimal and a quick route to a negative net equity.
 
I still say that it doesn't matter how wide or how tight an average stop is, it's what YOU can do with it.

Vertigo was spot on with his suggestion that one can post a hard stop of -500 points, but that's not what Buy1Sell2 would like to see in this journal. The whole issue is not to do with how small or big a stop is, but with hard vs soft stops. I recall a trade posted by Buy1Sell2 when his stop was about 10 points & it was a fixed stop, because he was unwilling to look at what's happening with p/a at that level he got stopped out only to observe price do a complete turnaround within a point of his hard stop. I am not talking about coulda woulda shoulda scenario, just about his unwilliness to look at what was happening at that specific moment in time, to re-evaluate.

When we say my stop is -2 points surely there has to be consideration for p/a behavior, what if another pattern presents itself which would only strengthen your initial decision to enter into a trade, why not adjust instead of stopping out?
 
Quote from LondonUSTrader:

You don't. You base it on the current volatility on any day. And you don't know that until you see how the market is trading on that day. Anything can happen on any day.
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Got that, many thanks.

You are basing your 10 - 36 tic stops on the volatility of the trading day.

regards
f9
 
Quote from fearless9:

Got that, many thanks.

You are basing your 10 - 36 tic stops on the volatility of the trading day.

regards
f9
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It's mainly based on the price pattern of the chart, which is a function of the volatility of the current day.

However, in addition to the price pattern I also factor in what I regard as sufficient breathing room. This has to take into account where you are entering and any potential stop running exercises. I try to place my stops near some important technical level + breathing room. Quite often price will test the technical level to shake people out of their positions so it is important to allow breathing room as well.

The key thing is if my stop gets hit most of the time it has to mean I am wrong.
 
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