I just read this post after posting mine above. I will start recording this as well. Then I will find out if my winning percentage is so high because I grab smaller profits early, which is likely the case. I may find that by leaving original stops in place and giving the trade room to move, I have a smaller winning percentage, but much larger profits on the wins.
Moving Stops in Your Favor
- Thread starter NoDoji
- Start date
I just read this post after posting mine above. I will start recording this as well. Then I will find out if my winning percentage is so high because I grab smaller profits early, which is likely the case. I may find that by leaving original stops in place and giving the trade room to move, I have a smaller winning percentage, but much larger profits on the wins.
Stops are important, but so is position sizing.
OP, do you have a solid plan for this as well?
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Here is another stop method. I mentioned moving stops below previous lows/highs, and stops to BE. This one is perhaps more risky.
Here for WAG, we see resistance near 30 and 32. This is a weekly chart, but both the daily and weekly are over-bought, and today, wag made new lows from yesterday.
I risk no more than 3% . So say your account was 85,000, and you go short today at the close of 28.90 with a stop of say 30.50 and a target of 26.5
(risking 1.60 to make 2.40)
this type of trade is riskier because your trading against the market and price has not yet reached these levels, as apposed to waiting for 30/32 to be hit then shorting, we want an earlier entry
take your entry, and subtract from your stop, and u get 1.60, then divide that by 3% of your acct ( 2,550) and you get 1,593 shares.
now if you wanted to get creative, if you know 1593 shares is 3% then divide by 2 and now you can get 2 different stop levels, increasing your odds of a successful trade instead of being stopped out all at once.
you might already know this or have a similar method....if not, i hope this helps
OP, do you have a solid plan for this as well?
---
Here is another stop method. I mentioned moving stops below previous lows/highs, and stops to BE. This one is perhaps more risky.
Here for WAG, we see resistance near 30 and 32. This is a weekly chart, but both the daily and weekly are over-bought, and today, wag made new lows from yesterday.
I risk no more than 3% . So say your account was 85,000, and you go short today at the close of 28.90 with a stop of say 30.50 and a target of 26.5
(risking 1.60 to make 2.40)
this type of trade is riskier because your trading against the market and price has not yet reached these levels, as apposed to waiting for 30/32 to be hit then shorting, we want an earlier entry
take your entry, and subtract from your stop, and u get 1.60, then divide that by 3% of your acct ( 2,550) and you get 1,593 shares.
now if you wanted to get creative, if you know 1593 shares is 3% then divide by 2 and now you can get 2 different stop levels, increasing your odds of a successful trade instead of being stopped out all at once.
you might already know this or have a similar method....if not, i hope this helps
forgot the chart
Quote from cashmoney69:
I know your a day trader and more experienced than me, but I disagree
A trader that breaks even or takes a small profit is doing much better than a trader who loses on most his/her trades.
Your saying a scalper who takes 10 cents is going to lose over time because he sold too soon into a move that was say 30+ cents or more?
I never said sell everything at a small gain, i said take some off at a small gain if need be.
Actually, it's all about the losses. How big or small the losses are dictates how taking profits will result in overall profit or loss in time.
It's logical to assume converting each trade possible to some type of profit therefore results in fewer losses. And that is true... the highest win % strategies always have smallest % size profits.
Their losses... size instead of frequency is the difference maker. Are we talking an 80% win rate where 20% losses eclipse the wins? Believe me, many traders bang their heads against brick walls trying to make that type of failed approach a winner.
Moral of the story is this: it takes some moderate to big wins for overcoming natural strings of loss, natural human error, natural human dumb mistakes, etc. The more generous your win +$$ to loss -$$ average ratio is, the lower your trade win % must be. Can't have one without the other.
It's the end result win +$$ amount tallied up that we either wire out of our accounts or wire more into for supplementing losses. Win % means nothing: profits over loss thru lengths of time is the bottom line. Cutting too many winner short = cutting off the edge.
Fine line to balance, no single best answer. Trade management decisions are a methodology or system apart from all else.
I think everyone is missing the point with this stuff about placing stops on swings. It's really irrelevant in the sense that gaps kill stops. There is no stop order that will limit your losses on a gap, other than a put/call. The real question is using stops as a daytrader.
We all know, or should know, exactly what we are willing to lose if the trade goes against us. Depending on your r/r ratio, it makes perfectly good sense to exit 1/3 to 1/2 when the trade goes in your favor. Depending on just how far, then you move stop to b/e. Some will argue that you stand the chance of getting stopped out just before a big run. But it could go either way. Pigs get fat, hogs get slaughtered. You take profits and move stop to b/e as soon as possible. then let it ride. Once you have a b/e stop, it's a free trade, and those are nice. Assuming you have a decent win percentage, this will work fine.
We all know, or should know, exactly what we are willing to lose if the trade goes against us. Depending on your r/r ratio, it makes perfectly good sense to exit 1/3 to 1/2 when the trade goes in your favor. Depending on just how far, then you move stop to b/e. Some will argue that you stand the chance of getting stopped out just before a big run. But it could go either way. Pigs get fat, hogs get slaughtered. You take profits and move stop to b/e as soon as possible. then let it ride. Once you have a b/e stop, it's a free trade, and those are nice. Assuming you have a decent win percentage, this will work fine.
I am a stingy MF'er when it comes to stops - I set em and move em every 5 minutes until my flat bottom is violated.
That doesn't sound right so let me explain. I use Heikin-Ashi charts on the 5 minute and when I get a flat bottom candle - I ride it till the flat bottom is violated. Please see chart for better explanation than I can give.
If I am long i want flat bottoms, if i am short I want flat tops. As soon as a bottom produces a wick, I am out.
The only way I have found for my stingy ass to stay in trends (mini) long enough to make nice change.
That doesn't sound right so let me explain. I use Heikin-Ashi charts on the 5 minute and when I get a flat bottom candle - I ride it till the flat bottom is violated. Please see chart for better explanation than I can give.
If I am long i want flat bottoms, if i am short I want flat tops. As soon as a bottom produces a wick, I am out.
The only way I have found for my stingy ass to stay in trends (mini) long enough to make nice change.
I have never understood, mathmatically speaking, how scaling out of a position was advantageous.
It seems to be done more for the need to be "right" than anything else.
Moving your stop up to break even makes sense once your position has moved in your favor that is equal to your initial risk.
The tricky part is determining the amount of profit you are willing give back as it moves in your favor.
Once the price moves in your favor 2x (or 3x, 10x, etc) the amount of your initial risk are you willing to give back 50%? 30%? 10%?
Once you start to document your exits in the spreadsheet you should be able to determine the expectency of your trades.
Just remember to also take note to the type of trade you have taken.
Was it a scalp? A trend/swing type trade?
Obviously, like stated above, if you are looking for a 1:1 risk/return ratio your winning percentage needs to be much higher.
That being said some of the more popular trailing stop techniques are:
Using a fast (5? 8?) period moving average to follow your trade and exit on a touch or close below (above)
Using the low (for longs) of the previous bar as your trailing stop
Using a stop based on volatilty ( like an ATR multiple or chandelier type exit) which give your position room to "move around" .
HTH
It seems to be done more for the need to be "right" than anything else.
Moving your stop up to break even makes sense once your position has moved in your favor that is equal to your initial risk.
The tricky part is determining the amount of profit you are willing give back as it moves in your favor.
Once the price moves in your favor 2x (or 3x, 10x, etc) the amount of your initial risk are you willing to give back 50%? 30%? 10%?
Once you start to document your exits in the spreadsheet you should be able to determine the expectency of your trades.
Just remember to also take note to the type of trade you have taken.
Was it a scalp? A trend/swing type trade?
Obviously, like stated above, if you are looking for a 1:1 risk/return ratio your winning percentage needs to be much higher.
That being said some of the more popular trailing stop techniques are:
Using a fast (5? 8?) period moving average to follow your trade and exit on a touch or close below (above)
Using the low (for longs) of the previous bar as your trailing stop
Using a stop based on volatilty ( like an ATR multiple or chandelier type exit) which give your position room to "move around" .
HTH
I've tested and tested and tested this stuff. Almost invariably, I have found that hard stops murder otherwise profitable strategies. I currently have the opinion that stops aren't a valid way to exit a trade and I need to find another way to take losses. When looking at strategies, I always have a way to exit that doesn't rely on a hard stop. And when trading trends, I have found that it is almost never the correct move to exit.
In terms of the discussion about break even stops, that means that if it is likely to get hit, it's probably not the correct move to have a stop so close to the market, and if it's not likely to get hit, it means the market has already moved and it doesn't much matter if I move to break even or not. If I'm on the wrong side of the market, I might as well take a loss. Trying to figure out how to scratch long trades in a downtrend is a waste of my time.
But I still need to exit. I have found that time stops work well as a really simple starting point. I have had better luck finding workable strategies that identify a trend, enter, and then exit at a particular time or after a particular amount of time has passed than with most other methods.
After all of that, I still need to tackle the problem of hard stops because I'd like at least a chance at getting liquidity in a move that goes wildly against me. When picking where to place them, I have had good results when the backtest results don't change measurably whether I have the stops in place or not. The times that they get hit and I would have been better off holding on are offset by the times where they saved me from a larger loss, and they are in place for when I really, really want out.
In terms of the discussion about break even stops, that means that if it is likely to get hit, it's probably not the correct move to have a stop so close to the market, and if it's not likely to get hit, it means the market has already moved and it doesn't much matter if I move to break even or not. If I'm on the wrong side of the market, I might as well take a loss. Trying to figure out how to scratch long trades in a downtrend is a waste of my time.
But I still need to exit. I have found that time stops work well as a really simple starting point. I have had better luck finding workable strategies that identify a trend, enter, and then exit at a particular time or after a particular amount of time has passed than with most other methods.
After all of that, I still need to tackle the problem of hard stops because I'd like at least a chance at getting liquidity in a move that goes wildly against me. When picking where to place them, I have had good results when the backtest results don't change measurably whether I have the stops in place or not. The times that they get hit and I would have been better off holding on are offset by the times where they saved me from a larger loss, and they are in place for when I really, really want out.
If you pick up books or look at websites today you expect to see a trend trader, swing trader, position trader, scalper or day trader use similar stops, targets and profit taking methods and techniques from the content. I have never found this is to be true. A stock swing trader using a daily time interval is a world different than stock swing trader intraday. They need different stops, target and profit taking methods. Just look at this forum. Each post is a totally different game plan that works for a trader using their specific style of trading.
Letâs examine swing trading. One thing that confuses strategy development is a stock swing trader in the daily time interval does look statistically similar to a stock swing trader intraday. But few realize they arrive there using different stops, target and profit taking methods. When I swing trade daily Iâm always in over night. When I swing trade intraday Iâm never in over night. Why? The possible gap in daily trading is not statistically significant most of the time (except earning season) where the gaps in intraday trading statistically would destroy the strategy. However, when I examine a typical swing trading period daily to characteristics of intraday swing trading period there are many statistical similarities. But when I examine the way I manage swing trades in my trading plan in regards to stops, target and profit taking methods they are nothing alike for daily and intraday swing trading.
Then there is trade management a killer of strategies. We post on these forums asking what kind of stops, target and profit taking techniques can we use that complement our style of trading. The answer many times comes back in trade management (which I am a huge believer) terminology. âWell if you position size⦠too much riskâ¦.Use Kelleyâ¦..This author says to useâ¦.I have the formula for making each trade betterâ¦â This leads many traders with a non working strategy to try to retro fit risk and money management techniques on top of a piece of trash to try to make it profitable. ET is filled to the top with excellent trade management ideas but few on how to make the underlying trading strategy viable. I will say it again. I preach the topics of risk and money management. But, too many traders, unfortunately, are not aware how their underlying strategy performs with their trading style.
The question of stops, targets and profits is directly related to the style of trading and method of execution. Given the 2 metadata types for price which are directionality and volatility there are a number of combinations that define each trader as unique. Each combination of directional and volatility price trading has a different need when using stops, target and profit taking methods. This one item is a major stumbling block in building a successful trading business because, as I said before, most literature today does not separate out trading styles. Then add automated trading, programming language limitations, brokerage order specifications, API requirements, time intervals, risk management and money management into this equation and it further distorts how stops, targets and profit taking are done.
Letâs take a look at NoDoji. A trader like NoDoji has a high win loss ratio and Iâm guessing the winners are not much greater than losers (this can still provide a significant bottom line). When NoDoji examines the trading records the objective becomes to increase the bottom line by better trade management. The first question NoDoji asks herself is why are you leaving so much on the table in some trades?
The answer to NoDojiâs dilemma is to understand this trading styles objective. I have been fine tuning a similar strategy/style for 10 years and will show what I found. The problem with this style and strategy is trends and volatility interrupted trading. In my case 20% of time for trends and 18% for volatility did not fit with my trading style. Every time a trend hits, this system fails to âdecide how great a trade couldâve beenâ and large profits are left on the table. Volatility leaves a similar mark on this style of trading.
In NoDojiâs case there may be really nothing missing. Changing stops, target and profit taking methods to try and capture more profits from patterns that occur 20% to 30% of the time may kill the entire strategy. I should know. I did it. Then what do you do?
The secret is to answer these questions about the trading style (I added more questions):
1. When a price moves how do you move (stops)?
2. Define when prices are not moving your way (to exit)?
3. Define which price movements you will trade (those that are your style)?
4. Define which stops, target and profit taking methods are relevant (to your trading style that fit the strategy being traded)?
So, how did I increase profits? The answer was to âUnderstand what is not a typical trade for my trading style and execute differentlyâ in this case swing trading. This means if I start a swing trade and trend or volatility take over, I change to a different set of stops, target and profit taking methods (to let profits run). Without this kind of flexibility I would have destroyed my basic swing trading trying to use one set of stops, target and profit taking methods for every trade.
Because I know what each swing trades characteristics it is easy to answer questions like
3. Move the stop to lock in some profit on the trade, and at what point do you do this?
It is extremely important to not let trade management drive the strategies development. The bottom line in this process is the strategy must be profitable as a stand alone entity matching the traderâs style first. Once this is accomplished other layers, like trade management can be added on top as long as they do not compromise or corrupt the foundation of the strategy. If they do corrupt it then start over and rebuild the strategy.