not exiting losers on stops

[vikana]

Quote from Gordon Gekko:

has anyone noticed if you add a stop loss to a system in wealth-lab/tradestation, the overall profitability goes down? however, i thought a trader is supposed to stop losers fast.

that's how it is most of the time. You also often reduce profitability by having profit targets that are too tight.

Trading is a game of "many plays". It's the statistics that matter, not any one individual trade. Assuming, however, that you avoid catastrophic losses.

So find some reasonable stop level (e.g. 3*ATR) and accept that a reduction on total profits is the price you have to pay to reduce the risks of catastrophes.

My two cents.

 

[Gordon Gekko]

Quote from gnome:

If you trade without stops, the market WILL eventually bust you. Period!

just for the record, i am not at all taking the side of not using stops. i'm just bringing up the things i've noticed.

btw, for the tests i was talking about earlier that didn't have stops, they were all daytrades. so you have to exit by the close, anyway (basically a time stop). i would never advocate a swing trader holding a loss til they wipe out or something.

 

[Gordon Gekko]

Quote from vikana:

So find some reasonable stop level (e.g. 3*ATR) and accept that a reduction on total profits is the price you have to pay to reduce the risks of catastrophes.

i think vikana is right. you should have a disaster stop point (based on backtests, MAE, etc.) and accept the reduction on total profits to avoid huge losers.

what i think is more interesting, though, is the stuff jack/bubba7 and phantom of the pits (rule #1) talk about. that is, knowing how winners act and recognizing and exiting a loser before it hits that disaster stop. i think if a trader can do that, that is HUGE.

once again, this gets back to a mental issue. a newbie trader will want to wait to get out of a losing trade at a stop, because he wants to let the loser run hoping he eventually makes money on it. a pro will be looking for clues to exit a loser ASAP, not waiting to be proven wrong and taken out on a large stop loss. the trades that didn't have flaws (as jack says), a pro will hold on to.

 

[baggerlord]

I set my stops so that I get out as soon as what I think will happen is proven not to happen. Say I am trading a pullbkack. I wait for it to start rising before I buy. Once it starts rising, it shouldn't drop below the lowest point of the pullback, or it is no longer a pullback. I think pivots make the best stops. Unless you are a Hershite, then you have ESP and can swing out on vines and ride rockets all day long.

 

[Gordon Gekko]

Quote from baggerlord:

I set my stops so that I get out as soon as what I think will happen is proven not to happen. Say I am trading a pullbkack. I wait for it to start rising before I buy. Once it starts rising, it shouldn't drop below the lowest point of the pullback, or it is no longer a pullback. I think pivots make the best stops. Unless you are a Hershite, then you have ESP and can swing out on vines and ride rockets all day long.

but just so you know, even what you're doing is still waiting to be proven wrong.

in your example, after the pivot low happens, you'll hold your trade til you are stopped out below the pivot low.

the stuff phantom of the pits (rule #1) talks about is more like this...modifying your example....

you see the pullback, price starts rising, you enter long. you should know what to expect from it and if that does not happen, get out, even if you made a small profit. you should not let the market tell you you are wrong and wait for the pivot low to be taken out. that will just be a bigger loss and also a waste of time (you could be in another winning trade instead).

i am not claiming this is easy to do. i'm just taking POP's side because it does make sense to me.

 

[Gordon Gekko]

Quote from Gordon Gekko:

but just so you know, even what you're doing is still waiting to be proven wrong.

in your example, after the pivot low happens, you'll hold your trade til you are stopped out below the pivot low.

the stuff phantom of the pits (rule #1) talks about is more like this...modifying your example....

you see the pullback, price starts rising, you enter long. you should know what to expect from it and if that does not happen, get out, even if you made a small profit. you should not let the market tell you you are wrong and wait for the pivot low to be taken out. that will just be a bigger loss and also a waste of time (you could be in another winning trade instead).

i am not claiming this is easy to do. i'm just taking POP's side because it does make sense to me.

one of the reasons i really like POP's rule #1 is because we do apply it in every day life and POP even makes that same point.

we do it in life all the time without thinking about it, however, when you're trading with real money, fear and greed take over and you don't think right.

HERE IS A PERFECT EXAMPLE/ANALOGY:

say you type in the URL of a web site. if the site doesn't come up within a few seconds, you may realize it is down or something and either exit your browser or visit another web site. HOWEVER, YOU COULD SIT THERE AND WAIT TIL INTERNET EXPLORER COMES BACK AND TELLS YOU THE "PAGE CANNOT BE DISPLAYED."

a stop loss in trading is the "page cannot be displayed" message. a pro trader will recognize a losing trade (slow web site response) and move on to the next trade while a newbie is waiting for his stop to be hit ("page cannot be displayed"). the newbie will waste more time and take a bigger loss than the pro.

THIS MAKES SO MUCH SENSE OUTSIDE OF TRADING, I REALLY DO BELIEVE IT SHOULD BE APPLIED TO TRADING. FEAR AND GREED TAKE OVER AND MAKE IT HARD, THOUGH.

 

[Gordon Gekko]

CONSIDER WHAT I SAID ABOVE IN MY LAST 2 POSTS. NOW ALSO READ THE POST BELOW:

Quote from dereksas:

2. That being the case, the secret to survival and success must not lie in the objective principles and theories you can learn from a book, but rather in the subjective discipline and emotional state of mind that you bring to the trading desk. Indeed, many would argue that if you have the discipline and emotional courage to admit when you are "wrong" (or COULD be wrong) in a trade while only allowing yourself to stay in those trades where you continue to be shown "right", then you would not even have to be right 50% of the time in order to stay ahead of the game. It's that tired old phrase you hear over and over: "cut your loser short and let your winners run." Definitely easier said than done.

3. And then even in those trades where you are shown to be right...in fact, more and more right as the trade goes your way, you could still end up wrong because ANYTHING can happen at ANY time. That retrace against you may look like normal consolidation, but then again, maybe it's just starting slow so that when you turn away for a second it will spike against you turning your winner into a loser. I have a theorem that I call "Derek's Monkey Theory" and it goes like this:

Hypothesis: Exit discipline and money management are more important to trading than TA, tape reading, or execution skill.

Proof: If you had to choose one, would you rather make your own entries and have a monkey manage your exits, or would you rather have the monkey make your entries and manage exits yourself?

Conclusion: When in a position, always assume that a monkey made your entry.

 

[bubba7]

This an some other contemporary threads are really impressive.

This topic is a transient topic in the sense that, as you see here, experts post that it is a problem that goes away.

Rule #1 is a significant directive towards this end and experience definitely sand papers away at the causes to reveal the solution.

There is the usual flack in this thread to give thought to.

I am going to workbackwards from expert to where the mud slingers are operating. (They have 4 or 5 limited set ups each and their setups overlap greatly).

Gordon you are, in my opinion, really with it in your successive posts. Nhkoi points out to you the efficacy of Rule #1.

Experts erraticate fear and memories of losses with experience that is skill oriented and by knowing the market. Rule #1 is abrasive and really "tough love" for the market trader.

Lets use an expert's view of this go/no go gauge. All entries are flawless. The timing of the entry is done by the market directly for class acts and by trader decisions specifically following the precision of their expert set up. There is nothing in the picture but perfection.

Beginers and intermediates do not "know this place" I recommend that they own it anyway and BE. BEing is powerful.

Okay everyone is still on the same page.

Now we all proceed the same way from here on in. Monitoring is KISS. 120% of the time spent monitoring is to make rule #1 work. We are continually proving nature is taking it's course from a flawless start AND we exactingly make the situation prove itself.

Here are the two forces: one force: a market movement does continue perfectly indefinitely. second force: rule #1 says: look precisely for one and only one thing: any deterioration of the perfection of the entry.

Experts have experienced it all and they have two BIG TIME altenatives: in a moment, please. go to * if you must.

Beginners and intermediates only have one alternative: they have to find only one thing: how the perfection is being erroded. One lousy question covers it all: It this trend doing what a trend must do flawlessly? For people who haven't seen it all but have seen a good trend, they ride only as long as they are able to not detect anything wrong. Rule #1 screams at you to find screw ups and as long as you cannot find one you ride on.

Gordon has collected all the facets of his topic. he has done the job. AMEN.

By Being (being an expert) and operating from proving there is nothing wrong, you just ride on. When Rule #1 gives you completion you are out at market. Taht is, Rule #1 clicks something is screwed up.

Doing 1,000 laps on this, WILL get you there to expert and wealth.

What do experts do with their two choices. They see opportunity all the time. All entries obey rule#1. You enter all trades as perfect trades. This absolutely puts you in a "continuation" strategic modus (enter/exit strategy) for the market's operating point. There are details galore and they all stem from this modus.
When rule #1 is satisfied, experts are at choice: they determine if the strategic operating modus has gone from continuation to change. If not, they exit. If it has, they reverse at market. This is done for one reason only: to stay on the right side of the market.

Stop and think. Beginners and intermediates can not use any strategy but a "continuation" strategy of entering and exiting. The reason is "experience". This is beyond their skill , training, etc.

Look at baggerlord. he has 4 set ups. None of them that he has stated he has have a reversal follow on component. he has a "reversal" strtegy. BUT it is one designed to enter a market reversal; it specifically is not designed as a strategy to use to end a rule#1 condition of satisfaction, namely that a trend has screwed up. Baggerlord has, as nhkoi stated elsewhere, in one month really rakced up and established a hot shit methodology.

Electron has word print out two pages long that says all there is to say from a buddie who is taking a break from trading. electron has made 49 posts, the front end of which is a beginner search effort. He too fits nhkoi miracle worker status with an applied math twist. Baggerlord is a business school graduate at age twenty. Work and trading are not his pair of interests. Skiing and trading mornings only (attention is better if he does it for two hour limit) are his interests.

Gordon, from 1999 on has traded with significant money. gordon has questions and he has expertly assembled the considerations that deal with this matter. Scoped and bounded.

The deal is to transition from beginner to expert and strive for refinement. entr with set ups or whatever. from then on you go rule #1. Trends all continue until there is an erosive factor that shows up. Ride until it comes up. Before you are an expert you exit when flaws appear. Do not go to hair trigger land. As you monitor you are specifically focussed on defining the trend. get the channel get the pace. Monitor it on the slowest data filled fractal that works. If a trend is not strengthening, you see it in volume deficiencies. You see that mini formations like stalls hitches and dip show up. In the channel all is well. At some point the channel traverses and retraces within the channel do come to bigger externalities like S or R. Failure to continue is telegraphed so many ways. Floor noise is an indicator,even.

This will be helpful I believe and that's why I posted it.

 

[baggerlord]

Good ol' jack, he can turn any thread into a discussion of metaphysical mumbo-jumbo. To clear things up, I graduated from a state university with a 4 yr degree, not a business school. I guess I am a loser because I only have a few setups and can't trade every move, all day long, picking up 3x the range. Jack can, but he won't post any proof(and neither will any of his disciples). I don't claim much , but if you want I'll post my trading summaries to back it up. Jack can't even give a straight answer to a simple question. With all the time Jack spends on here(an awful lot for a 70 yr old) it wouldn't suprise me if he has 10 other accounts that he posts under, and these are his disciples making 10 es points a day.

 

[baggerlord]

GG, sorry to get off topic! I like your idea of not waiting for a stop to be hit. A lot of times I will get out of a trade early if it isn't moving my way very fast so I guess this is kind of the same thing.