Setting stop losses
- Thread starter nxt7
- Start date
In my opinion, there isn't one objective "right answer" to this question: it just isn't a "one size fits all" situation, but depends on your trading style, frequency, magnitude, aims and trade-management.
Setting tight stops that quickly fail at a small loss if I'm wrong is definitely the way that suits me, because I'm very risk-averse, I need steady income, and over the years I've developed a trading style based on relatively high-frequency small trades with a high win-rate and comparatively small targets which can maintain the high win-rate. If I'm wrong, I'm wrong quickly and cheaply: if a trade doesn't move in my direction quickly, I don't want to be in it. And that's really "what it's all about", isn't it? At what point does your system predicate that your reason for entry is no longer valid? For me, it doesn't have to go far against me for that to be so. But not everyone (to put it mildly) trades like that.
Dat trading only, I think using stops for an experienced trader who is watching the screen is being lazy, you fall into pattern of "knowing" something is not making sense in price and say "OH, I have a stop and let the market totally decide for me" instead of taking a tick and get out. It is far easier to see the chart when not in a trade.
Not one or the other - both.
Tight initially in case entry turns out be prematurely or just wrong, wide as the move starts in your favor, tight when PA signals trend or pattern is approaching a possible reversal.
sure daytrader should not use stop-order,..
he does not need it: he sits in front of his comp from the beginning to the end of the trade. and his stop is in his mind, where it is moving according to what market is doing.
===OH, I have a stop and let the market totally decide for me" instead of taking a tick and get out===
it is not the market deciding for him , it his method deciding for him ,,
market only throws data at the method, which the method (usually in traders mind) asses... and then method indicates to trader what to do...
so I would rephrase your phrase this way: " Oh I have the a method (or mental stop based on the method) and I let my method to decide for me what to do !"
It is never good to abandon one's method in the middle of the trade, regardless of what its seems at the moment to the trader. It is not a matter of having the tick and saving one's ass , its a matter of believing the method and stick to it.
Then, after position is closed (in accordance to the method) trader may have all the time to reassess the method, the chart, anything. But he must close position in accordance to the method at hand. It take some balls to believe in the method, actually it is believing in yourself.
Well, we all have our way of saying what it is on our mind, I am very rigid in my beliefs and many folks don't understand why I take the trades I do or why the risk is the way I do, often times it is skills they not developed yet and I simply don't know how to tell them in words they understand. If I start re-phrasing every time someone says so, be no time let for trading, LOL I often have a PM dialog with few to try for them to better understand, but just way too often they don't have a clue. It be like a Neurologist tell me how the brain works.
I have my platform now do all exits as am in real time testing phase for current method am manually trading, so even when I see a signal, I hit mouse at bid/ask and software is supposed to not take my order as it should have seen something to negate all signals for entry or accept it. It also decides how many lots I can trade, eventually I won't have to even manually do entries. Unlike many others, I have longer process than most. But if I was still manually doing entire method, I have two choices for mental stops, $150 or delay to secondary signal so only difference I see is it $150 or nada cause risk too high.
I agree with you.
I have a system and calculated, based on over 1000 trades, the impact of using or not using a stop. I could mathematically proof that in my case I have to use a stop because it improves my performance. Without stops my profits would be lower, my losses bigger and my drawdowns bigger too. So it was clear what to do. Place the stop where performance was optimal.
In the end everybody uses stops. Or do you wait till every trade is profitable before getting out? If you have deep pockets you can survive a few margin calls, but if you do that, one day you will meet the mother of all losses....