Hard Stops vs Mental Stops

The problem for many traders is that the places they tend to put stops are also great locations for a reversal trade.

They have this internal debate because they notice that over a short duration of time there is in fact a positive edge to NOT stopping out of a trade.

As a general rule though, breakout traders tend to favor hard stops, reversal traders often favor time based exits/stops.

So for example a breakout trader looking for momentum will be willing to get out of losing trades when the edge is not with them over a shorter time horizon, because it is the price they pay for the liquidity of exiting the position. The shorter term trader, however, might actually be entering the trade when the breakout trader exits, and provides the liquidity and gets the shorter time horizon edge.
 
Quote from deaddog:

Maybe we need a definition.

Hard Stop: A stop order placed with your broker.

Mental stop: A stop order you are afraid to place with your broker because it might get hit.

I must admit that I use a combination. I have a stop number in my head and written down. Depending on the time frame I'm trading, when the price bar closes below that number I place an order with the broker below that bar.

The reasoning is to prevent myself from being shaken out by a spike down yet keep my loss reasonable.

Kind of a hard mental stop: :confused:
More...

DD,

Admittedly I had a rather harden response – probably has a lot to do with my past history with protective stops


When I switched from mechanical (aka hard) to mental stops – it was a bitch


I’d place a trade, had my stop point identified – and then proceed to convince myself why I should hang in a loser a little longer…, and a little longer still…, then even longer…

And damn can I be convincing at the wrong times...


I lost money

I carried the mental baggage the rest of the day – and into the next…

It affected my trading

Finally, thank goodness, I had enough and changed…




Now I enter a trade – I know where I will be wrong – I exit – I never give it a second thought

And I have no reservations about exiting – then entering in the same – or opposite direction – moments later (PA dependent of course)

It’s me simply trading




My hard (all be they mental) stops + added commissions from reentering – are way cheaper – both financially and emotionally

Whereas – in my experience – moving/ monkeying/ jacking with stops – flat screws me up..., and costs me money



When I saw the OP asking to compare / contrast “hard” stops and “mental” stops – when to me they are one in the same


I admittedly lashed out – but it is one aspect of my trading that is hard, inflexible, and set in stone


Apologies

RN
 
Quote from NY0BScalper:

I scalp and sit all day at the screen and always use mental stops. I don't really know any professional scalpers who actually use stop orders except to manage a position trade they want to not watch, or when they go out to lunch in a position trade.

The whole thing about "a disciplined professional trader always has a stop in to protect from a disaster scenario" is hogwash... walk into any equity prop shop, look at the experienced veteran guys, and see if they're using stops.
More...
veterans never used stops, they are relatively new, a pro would be watching the market and his positions and be on the job all day,making decisions,stops were usually on customer paper coming into the pit,we are all customers now ....you should have an expectation of where the trade is going before you execute it,if you don't feel that way any longer your out...if your a passive trader occassionally checking on the market then use hard stops..if you are trading full time on the screen all day,you should be able to mentally decide whether to be in or out
 
Quote from jiminsd:

Plus and minus of each. I am weighing the benifits of moving to mental stops. What is your take?
More...

how does a hard stop differ from a mental stop? isn't your mind involved in each? place the hard stop but with the caveat that you may change your mind (and the stop)as the terrain unfolds real time.
 
The very first question my mother asked me when saw me day trading: "They are watching you, aren't they?"

Would somebody please elaborate on what our own brokers can and cannot do in terms of running stops, please? Thank you.

Too silly question to ask? Sorry, this is the second time I post it.
 
Quote from KarinKleinstead:

If you are day trading ED, 6E or CL, there is so much liquidity that I don't think they can run your stops.
More...

Thank you for your kind reply, KK.

As one of my most respected posters here on ET said: "You're not even a pimple on the ant's ass...". I understand very well what you say about liquidity. But at any reversal point (or at any point where I place my stop on any time frame) there will be stops of many other traders. Agree?

As an outsider I wonder if somebody can legally collect this kind of information in attempt to exploit it? If I were the one who has the power to move the market and have an enormous order to purchase stock, why would I pay more if I could probe the market, bring it lower, albeit just a bit, and then start buying? Why pay more if I can make it available for less?

---
Back to the question of the original poster, I think I would like to hear your reasons, Sir. This question is a part of risk management and, personally, I would like to understand it completely.

Responding to you and in other posts, some traders speak of stops as they are trying to hide them from somebody. If not from others, then from themselves?

I understand the issue is complex, probably, just as with where to exit when you have the profit. The questions is, can you allow yourself to be as flexible with your stop loss as you can with your exits with profit?

Thank you for reading. I look forward to more discussions on this topic.
 
Quote from rossky:

I understand the issue is complex, probably, just as with where to exit when you have the profit. The questions is, can you allow yourself to be as flexible with your stop loss as you can with your exits with profit?
More...

I'm curious to hear some valid reasons for being flexible with a stop loss (by "flexible" I mean either moving a hard stop farther away or allowing price to run beyond a mental stop).

I use a hard stop on every trade, and I only move it in my favor, never further away. The hard stop is the place where my trade setup would be proven invalidated and, in fact, I often stop and reverse at that point quite successfully.

The advantage to a stop-and-reverse (SAR) strategy is that if the place where you're stopped out and reverse to the other side is nothing more than a "stop run" (stops turning into market orders that drive price a short distance where it then stalls from lack of real buying/selling volume and starts moving right back in the previous direction), I can get out of the SAR trade at break even (treating it as a failed breakout), and get right back in to my original position based on the fact that failed breakouts trap a lot of traders and now the initial setup becomes all the more likely to succeed.

A word of caution: This strategy works well during active trading times. During the doldrums and during channels/ranges on low volume, it can easily chop you up.
 
I am curious about your risk vs reward. Do you have an equal stop vs profit target, or is it based more on the chart, or is it standard.


Quote from NoDoji:

I'm curious to hear some valid reasons for being flexible with a stop loss (by "flexible" I mean either moving a hard stop farther away or allowing price to run beyond a mental stop).

I use a hard stop on every trade, and I only move it in my favor, never further away. The hard stop is the place where my trade setup would be proven invalidated and, in fact, I often stop and reverse at that point quite successfully.

The advantage to a stop-and-reverse (SAR) strategy is that if the place where you're stopped out and reverse to the other side is nothing more than a "stop run" (stops turning into market orders that drive price a short distance where it then stalls from lack of real buying/selling volume and starts moving right back in the previous direction), I can get out of the SAR trade at break even (treating it as a failed breakout), and get right back in to my original position based on the fact that failed breakouts trap a lot of traders and now the initial setup becomes all the more likely to succeed.

A word of caution: This strategy works well during active trading times. During the doldrums and during channels/ranges on low volume, it can easily chop you up.
More...
 
Quote from NoDoji:

I'm curious to hear some valid reasons for being flexible with a stop loss (by "flexible" I mean either moving a hard stop farther away or allowing price to run beyond a mental stop).

I use a hard stop on every trade, and I only move it in my favor, never further away. The hard stop is the place where my trade setup would be proven invalidated and, in fact, I often stop and reverse at that point quite successfully.

More...

Many traders exit trades because they have been told to "use stops" , with no other supporting logic. For example many have a blanket rule, "I use a 2 point stop" or whatever. The effect of this is that they end up exiting trades that if they were not in the market, they would be looking to enter rather than exit. This is not logical.

One must manage equity relative to risk, however I would say if this concern comes up frequently during the trading day one is trading too large. Getting pushed out of the market due to ones equity position is not a great logic for exiting the market and should be avoided to the extent possible.

The point is that where one enters a trade should not matter once you have a position. Decisions should be made, "from this point forward". If you have any kind of edge at all it is folly to dilute it with fear based management techniques that typically only succeed in reducing the percentage of winning trades.
 
You must log in or register to reply here.
Back
Top