Moving Stops in Your Favor

Quote from austinp:

Oh yes you can... matter of fact, that's exactly how a good many traders go broke and quit. Taking profits too soon = eliminating your edge over taking natural losses in the process.

To the original question at hand: there is no best way to manage trades. There are countless trade management methods or systems that have absolutely nothing to do with the reason(s) a trade was entered in the first place.

Mechanical system writers here will tell you there is no long-term edge of using any type of strategy stop versus plain vanilla dollar stop. Goes against the grain of logic, but if logic equaled profitable trading, everyone would be rich.

Lots of trade management tactics work about equally well over time. Main thing is to pick one that doesn't negate or destroy your edge, even if it's emotionally tough to swallow.
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This is probably the BEST post I have ever read on this site.
 
Quote from austinp:

but if logic equaled profitable trading, everyone would be rich.
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Trading heavily relies on logic, the problem is that people aren't logical enough, use flawed logic or draw the wrong conclusions.
 
Quote from NoDoji:

I invite input from experienced profitable traders on stop management.

When I put on a trade, I place an initial stop at a price that, if reached, would invalidate the original setup.

My profit target varies with each trade based on the overall setup. I normally have a profit target setup rather than a specific price (except when scalping a small move). For example, if I buy a stock that's oversold, I will look to take profits or trail a stop to lock in profits when it reaches an overbought condition.

As with most beginning traders, I have trouble letting my profits run. I tend to move my stop to break even, or take profits on the trade, too soon.

What have you found to be the most ideal stop management system:

1. Leave the original stop in place until the profit target or target setup is attained.

2. Move the stop to break even at a particular point in the trade, and at what point do you do this?

3. Move the stop to lock in some profit on the trade, and at what point do you do this?

4. Take profits on part of the trade at a certain point and then....
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All the above options can be used, depending on market condition and number of contracts
 
anytime you get out for a profit, its a good trade. Don't let fear and greed get in the way. I mentally visualize my trade before i make it and i am very happy putting in a stop to make sure i don't have a loser. Have a daily goal and stick with that. Never, Never turn a winner into a loser. the rest comes with time. I trade futures so i don't really know much about stocks except that i don't like them.
 
Here's a thought...

Why would you want to exit a winning trade using a stop? Doesn't that strike anyone as being a particularly passive way to exit a position? Sit back and watch the market fall through your stop? There are more fruitful and proactive ways of exiting positions which might yield you better results.

Just a thought...
 
Quote from ScoobyStoo:

Here's a thought...

Why would you want to exit a winning trade using a stop? Doesn't that strike anyone as being a particularly passive way to exit a position? Sit back and watch the market fall through your stop? There are more fruitful and proactive ways of exiting positions which might yield you better results.

Just a thought...
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Using a stop to exit a winning trade is far from ideal. Exiting any trade with a stop sucks because of the slippage. When I started this thread that was not one of the options I considered. I exit based on a target price or a target condition. When to move a stop to b/e or to lock in a small profit should the trade turn suddenly (and that sure can happen in a heartbeat) was the conundrum, especially on volatile stocks.
 
NoDoji-


lately I've been using the "free trade" stop method with decent results.

So far, it seems to make sense.

The guy I picked it up from said this about scalping (I'm paraphrasing)

"the point of scalping is to try to get a runner. You try to get yourself in a position where you can sit back and try to let a free trade go and see if it can run)

So basically it works like this:

Your stock is oversold, you see an entry and go for it.

You put in your initial emergency stop, which is for the entire position, just under support, or whatever your reason for entering the trade was (this im sure you are familiar with)

If the entry reason fails quickly- you get stopped out (fall through bottom you thought would be a bounce for example)


If the trade dicks around too long, makes you nervous, etc you can just try to get out at B/E or minor loss/profit and give your nerves a rest

if trade moves nicely in your favor- you find a good spot to take some profit- this is most likely where you would normally get out, or slightly before where you would normally get out.

But instead, you exit 1/2 your position, and lock in that profit. At this point you move your stop to breakeven on the remaining 1/2 and now you've got the first profit locked in and you've still got half the size in a "free trade"


ie: you can now see how part 2 does at no risk to yourself.

ok yes, technically, the "risk" is that second half of the position you could have made profitable, but instead may get stopped out on.. but on the flipside of that- you might see 3x the profit if it takes off running, and just bumps along in a trending channel all day.


There are plenty of variations of this "free trade" idea you can play around with-

-move stop between breakeven and inital first exit to lock in more profit (more risk you can miss a runner)

- exit in thirds (for me this gets complicated and starts racking fees)

- keep moving the stop up from breakeven every now and again


anyway, I tried this method and it seems like its got some value. I've actually seen the second half end up making more $$ running by itself than if the whole original size was exited at the first exit point..


the thing to remember, though is to really put the stop on the second half, or third chunk if you're doing thirds.

I did a 3 part trade once and had #1 and #2 nicely in the green and then did a mental stop for part 3 thinking it couldnt really hurt me much being only a third.. and guess what, if you dont have a stop in place and you fumble around with that last 3rd, it can still get you upside down. so def be strict with the stops on the 2nd/3rd exits
 
Quote from NoDoji:

Using a stop to exit a winning trade is far from ideal. Exiting any trade with a stop sucks because of the slippage. When I started this thread that was not one of the options I considered. I exit based on a target price or a target condition. When to move a stop to b/e or to lock in a small profit should the trade turn suddenly (and that sure can happen in a heartbeat) was the conundrum, especially on volatile stocks.
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Agreed. I personally think stops (and I assume we are talking about stops here in the context of liquidating your entire position in one go) should be there as a crash mat to try to salvage what you can from a position in the event of a runaway price move or gap.

I got the impression though that some people commenting on the thread move their stops up behind their positions and then always rely on the stop being taken out to exit their position. And if that's the case...wouldn't it be better to have already scaled out of your position in a controlled manner with much better fills?

As I said, just a thought.
 
Not my mother language, so forgive errors. There have been many possible stop-loss alternatives in this thread but one is missing: using ridiculously far-away beeing stop losses, something like 30 -50 % for a trade. This may sound a bit odd, but these kind of stop-losses works well in pull-back type swing-trading of stocks if you have enough nerves and can get 7 -8 trades succesful from ten. The trick is to use options and /or right position sizes to cushion inevitable wrong beeings.
 
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