If I trade ES and use 1 point stop loss, what are the pros and cons?

[college_trad3r]

Quote from powerfade:

A while back I suggested a correlation of the use of a backwards '3' in a screen name with incompetence. I felt the theory was pretty solid. The King of the imbeciles stock_trad3r, bondtrad3r and collegetrad3r were the ones that planted this seed in my mind. I felt the consistent content of their posts was too much to be explained away by coincidence.

I now feel there's another giveaway. Those who include this particular smiley in every post are almost certainly non-traders



It has to be this smiley. Just check it out, you'll see what I mean. T28 is the other reigning King of the Idiots.

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To the OP, it's very difficult to trade with a 4 tick stop on the ES. If the vol is there to justify the R/R (for you it's probably about 1/2.5, right?), you'll get stopped out on noise. If it's not, you won't have the range to cash out your winners.

What about the guy named MandelBrotset?

 

[MilkDrink]

i always use a 2-3 tick stop loss on all markets
including the ES

http://www.elitetrader.com/vb/showthread.php?s=&goto=lastpost&threadid=161883

ES requires a 4, tick stop loss, at range sometimes. Might do some fake 1 second trickery bid/ask flashing


the 4 tick stop loss is immediately moved to breakeven after a few minutes.

 

[MilkDrink]

The key to tight 3-4 ticks stops is a dual edge process


a) You have to buy WITH large order flow, as in the moment you enter, the direction can only be your direction or STOP out.


b) When you buy the chart at both extremes, it can be overbought extreme, over oversold extreme, either way , it can be bought long.


this is the part where most people are fearful to enter. that is where the risk is the least

 

[Nexen]

You could use small stops but allow multiple entries.

Nexen

 

[DrPepper]

Quote from BPtrader:

any opinions?

Thanks in advance.

I primarily trade pullbacks in the intraday trend. I use a 1 point stop or less for my initial entry. If the market goes against me immediately (below the high or low of my entry bar) I am out with a loss of 1 point or less. However, you cannot trail your stop by 1 point in the ES or you will rarely catch a runner due to the normal swings in the market. There are a lot better ways to trail your stop, like manually doing so 1 tick beyond the Parabolic SAR.

 

[powerfade]

Quote from DrPepper:
I primarily trade pullbacks in the intraday trend. I use a 1 point stop or less for my initial entry. If the market goes against me immediately (below the high or low of my entry bar) I am out with a loss of 1 point or less.

You must get stopped out a lot. Not saying this isn't a tradeable strat, just that you have to have iron discipline and can't be emotional in any way. Using this strat, you absolutely need those occasional trades that you can ride for multiple points. You need to have the mindset where you can see multiple small losses without starting to chase.

 

[fearless9]

Quote from BPtrader:

any opinions?

Thanks in advance.

I imagine that you have garnered by now that if you wish to trade ES, do not seek opinions from ET.

regards
f9

 

[gigsup]

ES is a highly volatile contract. Better do your homework on this one and factor in time.

 

[BPtrader]

Quote from fearless9:

I imagine that you have garnered by now that if you wish to trade ES, do not seek opinions from ET.

regards
f9

It's always a good thing to have fellow traders giving out advices and comments. I like it, that's what ET is for, isn't it?

Of course, it's important to recognize the validity of those advices and comments. In my case, I need confirmation more than anything else. If a successful trader speaks something valuable, I'll catch it, because I have made all kinds of mistakes that a trader can make.

Again, thanks to all of you who have posted under this thread!

 

[AAAintheBeltway]

Deciding on the optimal stop size is dependent on a number of factors. What is right for one trader will not work for another. Personally, I like to use a mental stop as disaster insurance rather than as a routine exit. Ideally, I would be out of a dubious trade before the stop was triggered.

This is where backtesting software can be very useful. You can vary the stop size and see how it affects profitability. For most any type of intraday entry signal, there is a point that winning trades almost never go. In other words, a winning trade tends to go against you by only so much. This is called maximum adverse excursion or MAE. Some s/w, like Wealthlab, will display MAE for your system and you can see the tradeoff between win percentage, biggest loss and profitability.

Obviously, different entry signals will expose one to varying levels of MAE. Time of day, market volatility, data releases, etc all come into play as well. If you have to use a very tight stop, you will probably need to restrict your trading to less volatile times. A one point stop would be pointless immediately after a FED release for example.

The idea that small stop levels reduce risk is illusory. They might reduce the exposure on any particular trade, but over time they tend to reduce profitability, both by increased numbers of losing trades and by knocking you out of potential big winners.