Leave stop loss and target or exit early?
- Thread starter blox87
- Start date
Iv'e read your posts and Nodoji's excellent posts. I might just add something here that you may find helpful.
Though it is self evident, the better your entry point the tighter your stop can be. Therefore, consider taking fewer trades by letting the market come to a very favorable entry point. It could be that the price when you get your "trade signal," whatever that is, is not necessarily the best entry price for the trade. Therefore once you decide whether you want to enter long or short you might consider waiting patiently for a very favorable entry point. Consider adopting the attitude that if the market doesn't give me the entry point I want, then screw the market, I'm not going to participate. You'll take many fewer trades that way, but you should end up with a very high percentage of winning trades. This is just something I think you should consider -- assuming it fits your trading personality.
I think it depends on several factors:
First, your holding time. If you're targeting two point in the ES and you expect to get there in a few minutes, most of the time things in the market aren't going to change that much (and if they do, your 1-2 point stop will be hit before you know it), so for most people it makes sense to let your orders be.
If, however, your holding time is longer (I'm not so much talking about timeframe but number of bars) things can and do change. Some people think that leaving your original orders in place and sticking to your guns when things change shows discipline; without meaning to offend anyone (that comes later
) I think they confuse discipline with stubbornness: if the reasons for the trade have changed, so should your management, you just have to determine a way to be able to tell that it's the market that has changed, not your emotional state.
Second, your trading style. If you're fading extremes, catching counter-trend swings, doing mean reversion, etc., it makes very good sense to move your stop to breakeven because, based on your view of the market price should not go back to your entry price once it's moved a certain amount in your favor. That is, if you get stopped out at b/e, your assessment of the market was wrong (or early, as you wish), regardless of what happens next.
If, on the other hand, you're following the trend - and you're entering in logical places, i.e S/R, etc. - retests are normal and even though moving your stop to b/e will spare you the occasional loss, it will also kick you out of many good trades, usually without giving you the time/opportunity to reenter at a good price (for a leg of the trade anyway - it always marvels me how some people will tell you that if they hadn't been stopped out by one tick three months ago, now they'd have a huge trade).
Note: the best thing you can do is run a backtest in your computer (or by hand if you take few trades) and see how your results would have been if you had stuck to one or the other system (or a selective use of moving your stops/targets based on some reasonable logic, not on over-fitting). NinjaTrader (if I recommend it to one more person, I'm gonna start asking for money) has a feature in its DOM by which you can select a "Shadow" strategy and see in real time how much you'd be making moving or not moving (see picture).
Third, your "technical" level of experience/skill and emotional self-control. The greener you are, the less you should fiddle with your orders because a) you'll have a hard time distinguishing between noise and signal and b) you'll be swayed by your emotions.
Finally, I'd say that great traders (with the exception of those using automated systems - and even them have contingency plans to make exceptions) DO change their stops and targets, only that they don't do it without rhyme or reason, but as conditions warrant.
PS: I know Schizo's secret - but I'm not telling - or maybe I am
First, your holding time. If you're targeting two point in the ES and you expect to get there in a few minutes, most of the time things in the market aren't going to change that much (and if they do, your 1-2 point stop will be hit before you know it), so for most people it makes sense to let your orders be.
If, however, your holding time is longer (I'm not so much talking about timeframe but number of bars) things can and do change. Some people think that leaving your original orders in place and sticking to your guns when things change shows discipline; without meaning to offend anyone (that comes later
) I think they confuse discipline with stubbornness: if the reasons for the trade have changed, so should your management, you just have to determine a way to be able to tell that it's the market that has changed, not your emotional state.Second, your trading style. If you're fading extremes, catching counter-trend swings, doing mean reversion, etc., it makes very good sense to move your stop to breakeven because, based on your view of the market price should not go back to your entry price once it's moved a certain amount in your favor. That is, if you get stopped out at b/e, your assessment of the market was wrong (or early, as you wish), regardless of what happens next.
If, on the other hand, you're following the trend - and you're entering in logical places, i.e S/R, etc. - retests are normal and even though moving your stop to b/e will spare you the occasional loss, it will also kick you out of many good trades, usually without giving you the time/opportunity to reenter at a good price (for a leg of the trade anyway - it always marvels me how some people will tell you that if they hadn't been stopped out by one tick three months ago, now they'd have a huge trade).
Note: the best thing you can do is run a backtest in your computer (or by hand if you take few trades) and see how your results would have been if you had stuck to one or the other system (or a selective use of moving your stops/targets based on some reasonable logic, not on over-fitting). NinjaTrader (if I recommend it to one more person, I'm gonna start asking for money
) has a feature in its DOM by which you can select a "Shadow" strategy and see in real time how much you'd be making moving or not moving (see picture).Third, your "technical" level of experience/skill and emotional self-control. The greener you are, the less you should fiddle with your orders because a) you'll have a hard time distinguishing between noise and signal and b) you'll be swayed by your emotions.
Finally, I'd say that great traders (with the exception of those using automated systems - and even them have contingency plans to make exceptions) DO change their stops and targets, only that they don't do it without rhyme or reason, but as conditions warrant.
PS: I know Schizo's secret - but I'm not telling - or maybe I am
For a couple weeks now, I've been doing my trade analysis comparing the difference between leaving initial stops and targets and moving stops to b/e after a certain move in my favor and so far found that leaving initial stops in place produces more profit than moving to break even. (I do allow for moving targets further into the green if price comes barreling toward a target.)
The exceptions to this are counter-trend trades and breakout trades. Moving stops to b/e rather quickly on CT and BO trades rarely impacts the end result negatively. Breakouts either go or they fail and you want out quickly if they fail. Intelligent CT entries are based on a very solid knowledge of the price action of your instrument and if you know when to put on a CT trade and how much to ask of the market when you're trading against the market's will, your target should be filled rather quickly once price moves your way.
Quote from Picaso:
PS: I know Schizo's secret - but I'm not telling - or maybe I am
Come on, Picaso, we all know Schizo's secret: He uses a broken crystal ball!
Nobody can "read the tape" successfully and cover all aspects of trade management.
I started trading by scalping bond futures in the CBOT pit in 1992 - and I was taught a firm puke rule first and foremost. The best scalpers (tape readers) I ever met and interacted with both socially and professionally had rules for losses and capital management.
I started trading by scalping bond futures in the CBOT pit in 1992 - and I was taught a firm puke rule first and foremost. The best scalpers (tape readers) I ever met and interacted with both socially and professionally had rules for losses and capital management.
I had a 2nd day of simulation trading with this strategy.
Basically the concept of the strategy is to buy on a pullback at a specific point after price makes a strong move in any direction.
Trade 1 was a long at 1087 and it went to target at 1089 in roughly 25 minutes.
Trade 2 was a short at 1089.25 right before the Treasury budget came out at 2pm EST and price just turned around and drifted higher to the close. I ended up closing it at 1094.50 as the market was making new highs on the day.
I had some other signals that I didn't take because I went and took a nap.
Basically what would have happened was:
Not Traded 1 - Long 1089.50. This would have went to target in 20 mins.
Not Traded 2 (NT2) - Short 1091. See * after NT2.
Not Traded 3 (NT3) - Close NT2 for a 1 tick loss and reverse to Long 1091.25. This would have just touched the target of 1093.25 before going back lower.
*NT2 short would have then moved down to its target.
So do I hold NT2, reverse into NT3 and forget getting back into NT2, or reverse into NT3 and then get into a price for NT2? (if that makes any sense). I'm afraid of getting whipsawed in and out of trades.
I have a notebook page full of trades that I manually backtested on and they all worked out really well. I was 7 for 8 one day and 3 for 3 on another day. Going back even further and looking for my entries, I was getting a few days without any losses. I don't know why yesterday and today it hasn't been working.
I'm also thinking maybe this is only good for the first couple hours of the day? But through backtesting the signals were all reliable for the entire market day.
The problem I'm fighting with now is that an exit strategy could be that if it gives me a reversal signal, then reverse, but if the market just drifts away like it did today from 2pm to close, 2 bars up, 1 bar down, 2 bars up, 1 bar down, then it just slowly drifts away while I'm taking on more losses.
I feel like my entries are good, it's just the exits that are causing me the biggest problem as I don't exactly know how to get out when the market is telling me it's not going to my target. Maybe last two days were just variance? I don't know. Maybe I could use a smaller stop? There were a couple times where if I just let the market do its thing it eventually came back without an exit signal and went to target. I think one of my trades yesterday took 2 hours to go to target. What I'd like to see is that when the market makes a move and I get in on a pullback, I'd like to see it keep going as larger moves are common, 2 point targets are really a small part of the larger moves that the ES has.
Some of it is With Trend and some are Counter Trend, but my signals basically come after one direction starts making a move whether it be bouncing off of S/R or making a breakout.
Sorry this was so long.
Basically the concept of the strategy is to buy on a pullback at a specific point after price makes a strong move in any direction.
Trade 1 was a long at 1087 and it went to target at 1089 in roughly 25 minutes.
Trade 2 was a short at 1089.25 right before the Treasury budget came out at 2pm EST and price just turned around and drifted higher to the close. I ended up closing it at 1094.50 as the market was making new highs on the day.
I had some other signals that I didn't take because I went and took a nap.
Basically what would have happened was:
Not Traded 1 - Long 1089.50. This would have went to target in 20 mins.
Not Traded 2 (NT2) - Short 1091. See * after NT2.
Not Traded 3 (NT3) - Close NT2 for a 1 tick loss and reverse to Long 1091.25. This would have just touched the target of 1093.25 before going back lower.
*NT2 short would have then moved down to its target.
So do I hold NT2, reverse into NT3 and forget getting back into NT2, or reverse into NT3 and then get into a price for NT2? (if that makes any sense). I'm afraid of getting whipsawed in and out of trades.
I have a notebook page full of trades that I manually backtested on and they all worked out really well. I was 7 for 8 one day and 3 for 3 on another day. Going back even further and looking for my entries, I was getting a few days without any losses. I don't know why yesterday and today it hasn't been working.
I'm also thinking maybe this is only good for the first couple hours of the day? But through backtesting the signals were all reliable for the entire market day.
The problem I'm fighting with now is that an exit strategy could be that if it gives me a reversal signal, then reverse, but if the market just drifts away like it did today from 2pm to close, 2 bars up, 1 bar down, 2 bars up, 1 bar down, then it just slowly drifts away while I'm taking on more losses.
I feel like my entries are good, it's just the exits that are causing me the biggest problem as I don't exactly know how to get out when the market is telling me it's not going to my target. Maybe last two days were just variance? I don't know. Maybe I could use a smaller stop? There were a couple times where if I just let the market do its thing it eventually came back without an exit signal and went to target. I think one of my trades yesterday took 2 hours to go to target. What I'd like to see is that when the market makes a move and I get in on a pullback, I'd like to see it keep going as larger moves are common, 2 point targets are really a small part of the larger moves that the ES has.
Some of it is With Trend and some are Counter Trend, but my signals basically come after one direction starts making a move whether it be bouncing off of S/R or making a breakout.
Sorry this was so long.
Yes and no.
To make the anser yes only, you need to learn the following.
On any trading fractal, trends have three moves. This is new to you.
With respect to trading fractals; they nest in an interlocking way. This is new to you.
Lets reason through how you got to the 2 point target and the 6 point stop.
You looked at the ES and said I want to make 2 points on a faster fractal and keep myself protected relative to a slower fractal.
All of the above is a beginning point for you to always get the yes answer.
Basically, you are trading in a way that jumps fractals. Because you do; the approach you ask about has a "no" answer. Stop jumping fractals.
Look at what I mentioned visually. Draw a slower fractal on a chart. Notice inside there are three moves on the slower fractal. You may not know what the word move means. Think about it.
Now look at each of these three moves and draw the three moves inside each one.
Ordinarily, you miss the entry of the beginning of the first move (faster trend) of the slower fractal. You are on the sidelines a lot of the time. Begin to enter on this signal (the beginning of the first move) from now on.
As you see the market direction changes twice on each faster fractal. you are thinking about trading these changes in direction and you are not very alert since you do not use leading signals but rely on only lagging signals. Too bad.
You may notice that the market goes in the same direction on both fractals sometimes and sometimes the direction is the opposite with respect to each fractal. Think about how important this information is. Think about the value of knowing that you know this all the time.
you might want to conseider how to get to YES all the time.
Do it this way:
1. Learn to ID the beginning of the first move of the slower fractal.
2. Learn to hold to the end of the thrid move of the slower fractal.
3. Learn to trade the first move and reverse at the end of the first move.
4. Learn to hold the second slower fractal second move from one end to the other.
5. Learn to reverse at the end of the second slower move.
6. Learn to hold until the simultaneous ends of the thrid move and the whole move of the slower fractal.
7. Learn that there are even faster fractals inside of the fractals I have allowed you to begin to see. you can learn to trade all of those as well.
good luck.
I'm sorry I was so specific; it will probably give you a head ache. But you will be making 7 or 8 digits a year on the ES.