I see what you are trying to say here but that is terrible advice to a new trader. How many times have you thought they were just going to hunt for stops by a couple ticks and then seen it explode to the upside? Best advice for this situation is to let your stop hit, then wait and see if it was a fakeout, and then you can reenter.
Passage to $1 Million
- Thread starter smilestraders
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I see what you are trying to say here but that is terrible advice to a new trader. How many times have you thought they were just going to hunt for stops by a couple ticks and then seen it explode to the upside? Best advice for this situation is to let your stop hit, then wait and see if it was a fakeout, and then you can reenter.
Could you tell us (without giving any secrets away) what divergence you are looking at?
Any clue as to how to determine if the market is trying to eat stops?
If you use divergence to determine whether the stop is valid, do you wait for the divergence to end before you take your loss?
I have had stops eaten quite a few times. Quite frustrating I'll admit.
I have attempted to be flexible to prevent this. I would calculate a stop but wait for the bar on whatever time period I was using to close below the calculated stop, then set a hard stop just under that bar.In theory this would prevent me from being taken out by a sudden spike down.
Reality is that over the long run my bottom line would have been better off if I had taken the original stop. Just my experience with my trading strategy.
You really can't emphasize this enough especially for new traders. Just today CL put in a confirmed short signal with confluence from all angles: First a failed breakout through the high, breakdown of previous support, and of the 20-bar MA, pullback to the 20 MA, failed b/o through it, closed below it at the second lower high and was fully "overbought" stochastically. This type of setup has NEVER yet failed for me. Ever.
I sell the break of the signal bar and it moves my way quickly. I move my stop to the high of my entry bar (in my favor, not further away). This setup is so strong that if it were to retrace back through this whole breakout bar, a bear trap would be quite possible and could result in a reversal.
As price reversed from profitable to nearing the stop, I joked with my trading roomie (who happened to take the same trade), "It's a fakeout, move your stop above the high of the day!"
We would never actually do that, it's against our trading rules. Period. But with a setup that strong it would easy for a newer trader who NEVER had that setup fail before to assume that it would eventually go their way and maybe shouldn't even use a stop.
The rest of the story: We were stopped out for small losses. I took a quick lunch break, and returned to see that price had not only ripped through the high of the day, but had also taken out the overnight high, then blown through nearly 3 more resistance levels and consolidated into the close, meaning if you were holding the position right now because you believed it would "come back", you are currently $1080 underwater per contract.
Quote from dst888:
Yes, indeed. And thankfully my trading account still had a tradeable balance left in it after learning this lesson the very, very hard way during my first year. Get burned enough times and you learn to wear an oven mitt before grabbing the cookie sheet.
I may still be prone to strong bias, but those handy stops protect me from myself
You totally miss the point that she is trying to make, which is that a stop should tell you that your original decision was probably wrong.
Now if you were wrong, the market could then move in the opposite direction, and you can get in and make back your loss. Or you could be trapped in chop and taking a reverse will get you stopped out again. I would suggest if you stop out twice, stop trading that future and go do something else. I would also suggest if you are a scalping, ES, YM, and NQ are much better than CL which can rip you apart with random movements.
Now if you were wrong, the market could then move in the opposite direction, and you can get in and make back your loss. Or you could be trapped in chop and taking a reverse will get you stopped out again. I would suggest if you stop out twice, stop trading that future and go do something else. I would also suggest if you are a scalping, ES, YM, and NQ are much better than CL which can rip you apart with random movements.
Did you read NoDoji's other post in other thread, (it is not about stop)
" A perfectly balanced coin is tossed by a perfectly calibrated machine 50 times in a row and comes up heads. ........."
You totally miss the point that she is trying to make, which is that a stop should tell you that your original decision was probably wrong.
" A perfectly balanced coin is tossed by a perfectly calibrated machine 50 times in a row and comes up heads. ........."
You totally miss the point that she is trying to make, which is that a stop should tell you that your original decision was probably wrong.
Right, it's about bias, not stops. Today the perfectly calibrated machine that tossed a perfectly balanced coin and came up heads 50 times in a row tossed a coin that came up tails. If my trade had no stop, I might've stared at the coin and refused to see that it was actually tails this time.
Bias can cause you to believe the coin tossing machine is more likely to toss heads than tails on the 51st toss even though the probability of heads is still 50%, just as every trade is brand new and anything can happen even if the same thing happened 10 or 50 or 500 times in the past. Placing and honoring a stop ensures that when the expected heads turns up tails and you simply refuse to believe it's tails, your belief, bias and emotion are removed from the equation.
Well, does that not mean that the stop is where the market proves your belief was wrong. I assume you have to have a belief for example a reason to take the trade since I know you just don't take random trades.
Now this can be independent of bias, you may not have a short or a long bias, just a belief in your setup and a stop to take a small loss rather than an account blowing up loss.
I also believe in my setups, and my stop is get me out of the trade when I made a human error for example chased the market instead of following my edge.
Now this can be independent of bias, you may not have a short or a long bias, just a belief in your setup and a stop to take a small loss rather than an account blowing up loss.
I also believe in my setups, and my stop is get me out of the trade when I made a human error for example chased the market instead of following my edge.
My stop is never placed where the market proves my belief is wrong. You see, my belief can be very right. I may enter a short position believing price will reach 77.31 and present me with a specific amount of profit. And price will very likely reach 77.31 at some point, but it might head to 89.73 before coming back to my target. So my belief may be absolutely correct, but my account might be wiped out before my belief became reality.
So my stop is placed where the market proves my trade in my working time frame no longer has the risk:reward ratio necessary for me to be consistently profitable over time.