Question about stops

L

lasner

Hi Guys I have a question about stops. I'm looking at trading markets like silver and oil electronically and want to place my stop very close maybe a quarter of a point off. I'm going to use an oco order so once I get filled I want the stop to kick in only a quarter of a point off.

What's the likelihood that I will just constantly get stopped out? I want to minimize as much loss as I can. I'm looking for the market to just shoot through my entry point.

Let me know what you think?
 
volatile markets have a lot of noise, therefore a small stop is a very very bad idea.

if you are not comfortable with large stops, trade a less volatile instrument.
 
Quote from silvermotion:

volatile markets have a lot of noise, therefore a small stop is a very very bad idea.

if you are not comfortable with large stops, trade a less volatile instrument.
More...

I'm trading on about 15k and was thinking what's the point of placing my stop $150-$300 away when I can just chip away at the market with $25 stops....
 
I can't speak for oil, but you can absolutely forget about silver! Even with the mini- contract you will be instantly stopped out on just about every trade. It is not very liquid so there are always gaps in the bid/ask and frequently they are over $25.

You might be able to pull it off in mini Gold however. I sometimes catch breakouts with a $50 stop in the regular contract - in the mini each dollar move is about $33, so you could catch a few here and there.

All in all a $25 stop is going to make it extremely difficult for you to be successful, but, as the quote goes...

"be a student, not a follower ... formal education will make you a living; self-education will make you a fortune"
- James Rohn
 
The way i work with stops is the following, i calculate the normal immediate noise of the instrument im trading, and im placing my stop beyond that noise.

Lets say i wanna go long the ES at 1300.0, and the normal noise is 3 pts, i will place my stop 4pts away. even if its going against you but less than 3 pts, its not really going against you, its just noise. beyond 3 pts, it is going against you.

i also did a lot of work on my current strats, and the modeling indicates that the smaller the stop, the lower the profits therefore i am using what my research tells me is the optimal stop.

also small stops is not the best way of controlling risk if that is what you are trying to achieve. there is a lot of others things you can do to keep risk manageable, like hedging.
 
Quote from silvermotion:

The way i work with stops is the following, i calculate the normal immediate noise of the instrument im trading, and im placing my stop beyond that noise.

Lets say i wanna go long the ES at 1300.0, and the normal noise is 3 pts, i will place my stop 4pts away. even if its going against you but less than 3 pts, its not really going against you, its just noise. beyond 3 pts, it is going against you.

i also did a lot of work on my current strats, and the modeling indicates that the smaller the stop, the lower the profits therefore i am using what my research tells me is the optimal stop.

also small stops is not the best way of controlling risk if that is what you are trying to achieve. there is a lot of others things you can do to keep risk manageable, like hedging.
More...

How do you calculate noise?
 
There are a lot of ways to do that

The ATR is a popular indicator used for that purpose, you can for exemple take a N period ATR , or the average between a long term ATR and short term ATR (like 34 bars and 10 bars)

Personally what i do is i take the range every hours, and draw a grid and then extend this grid up and down by a factor of .382 multiple times, and each of those .382 lines is a immediate S&R level that i use for entries and exits, so if the range is small, the noise will be small, and the lines will be closer apart, calling for smaller stops, when the range expands, the distance between the lines will increase, so will my definition of noise, and the stops will be larger. same thing happens to target, i like to use a line+a couple tics for a stop and 2-3 lines for targets.

imagine murrey math lines that expands and contract with the range of the instrument im trading.


here is today chart of the Emini ER2 future with the lines i am talking about

these lines are made from the range between 3 and 4pm and are extended up and down. (they change every hour)
ER206-0813_03_20085Min.jpg
 
Let me make sure I understand you correctly....you are going to go long the ES at 1500 and place your stop at 1499.75, correct? It sounds as though you are trying to avoid suffering large losses, which, of course, is a great idea but what will happen instead is death by 1000 cuts. It sounds as though your strategy is based on one thing -- timing, and your timing has to be perfect or nothing. There isn't a trader on the planet who can time the ES to within .25.

Here's what I suggest you do instead....incorporate money management and risk management into your plan, with respect to the size of your account. The biggest mistake traders make is thinking they can trade successfully by taking one trigger and having timing solve the rest. I don't doubt there are people who can win this way but to increase your chances of being a winner you have to use money management as well.

There are times when my first trigger on the fut's is an immediate winner. When it happens I just take the money and run. But then there are times when my first trigger isn't a winner. I don't view that as a bad thing. In fact, it's a good thing because I have a money management plan laid out well ahead of time that takes a small trigger in the beginning and adds to the trade in increasing amounts if the reason for getting in the trade initially is still intact. I manage my account extremely efficiently and it picks up the slack for the times my timing isn't spot on. I've been trading for quite a few years and it's my belief that if you don't have a plan for managing your account you will fail. Money Management, in my view, and based on my experience, is thee, single, most important aspect of trading. Timing is a distant third.

Quote from lasner:

Hi Guys I have a question about stops. I'm looking at trading markets like silver and oil electronically and want to place my stop very close maybe a quarter of a point off. I'm going to use an oco order so once I get filled I want the stop to kick in only a quarter of a point off.

What's the likelihood that I will just constantly get stopped out? I want to minimize as much loss as I can. I'm looking for the market to just shoot through my entry point.

Let me know what you think?
More...
 
Oh, and I don't use physical stops, they are all mental stops. I refuse to let the market dictate how I lose money. If you place a stop below the previous low, or at an arbitrary number like 2 points away, you are leaving your trade to the mercy of the market and the market will only punish you if given the chance.
 
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