Stop Losses 101

[Scataphagos]

Now with hindsight, the epiphany I had yesterday was what if I just broke those few big losses into a bunch of smaller stops,

More to this story than you recognize.

If you take a "string of losses"... as have we all.... and you did so with proper stop discipline, you soon get the idea, "If I'm losing time-after-time, I'm doing it wrong". You'd like to come to that conclusion without too much damage to your capital.

When you get such a string of losers.... and it's not from stupid or sloppy plays, it's likely because your "bias" was wrong. YOUR trading bias was not the same as the market's.

My story on "consecutive losses" is that years ago I had a string of 9. I have a friend who had a string of 14, at least that he'd admit to. His mind state was to "fade upside breakouts because most of them are false"... and he got his head handed to him. His bias was to "short upside breakout strength", but the market's bias was to "follow through/reward strength".

A trader can destroy his capital with 1 or 2 big losses, "hoping the market comes back in his favor to save his bacon" on a particular trade. No need for that to ever happen.

 

[Dollardogs]

Thanks, that's another good point. I've learned. Expensive lesson unfortunately, but hopefully I'm hitting at least 2 or 3 to 1 on my plays for a while. If so, I can recover those losses in a couple weeks. I basically chased after the first loss, leading to 3 of them. Embarrassing to admit, but I doubt it's exactly unprecedented.

 

[Scataphagos]

Thanks, that's another good point. I've learned. Expensive lesson unfortunately, but hopefully I'm hitting at least 2 or 3 to 1 on my plays for a while. If so, I can recover those losses in a couple weeks. I basically chased after the first loss, leading to 3 of them. Embarrassing to admit, but I doubt it's exactly unprecedented.

No worries. You don't "get successful" until you get your head strait about it all. That's a matter of experience you just have to "go through"... it's not intuitive and nobody hands it to you.... unless you can find an expert teacher. Just don't want the "learning curve" to wipe you out.

 

[easymon1]

DDog, how many entry setups do you use?

 

[Dollardogs]

DDog, how many entry setups do you use?

Do you mean how many positions am I doing per day? Usually no more than 1 or 2. I watch about 12 companies premarket. I still really struggle to have a good sense of entry/exit points still, so I'm heavily reliant on EMA crossovers for that. Also still pretty hopeless at scanning for stocks, so I've been relying on a pretty good and cheap tip service I found to help with that.

Here's my war room: EMA crossovers, RSI, and bid vs ask volume, I slap the OBV on there too but it's more to try to learn it, also tried having other indicators but I couldn't process stuff anywhere near quick enough to even get to them (Momentum, MACD) so I'm streamlining things now.

 

[Dollardogs]

No worries. You don't "get successful" until you get your head strait about it all. That's a matter of experience you just have to "go through"... it's not intuitive and nobody hands it to you.... unless you can find an expert teacher. Just don't want the "learning curve" to wipe you out.

That's what I keep telling myself, that these were unlearnable without getting punched in the gut and going thru it first hand or having some guru to chew me out before they ever happened, which I don't have. In my main line of work, academia, nobody is interested in this world at all.

It's funny cuz I've kinda done all the major types of blunders: panic sale when I coulda waited a couple days for it to recover, panic sale when I was using some margin and that fact made me flinch, panic hold on my first short going against trend, and I did even chase a couple mins late on one of those "reddit stocks" the other week, ended up holding a smallish bag on that one when they started halting them over and over. Good times! If there's any other major styles of blunder I've left off this list, please let me know asap haha!

 

[lindq]

It's funny cuz I've kinda done all the major types of blunders:

No, you haven't even scratched the surface on the pile of possible blunders. 5 more years of digging, and you'll just start to see some daylight.

You can get a head start by (1) Tossing your lame indicators, and (2) Not making another trade until you have a clearly systematized reason for your entries and exits.

 

[Poljot]

You want to follow the trend but not get stopped out by the noise.
It is common to use average true range or standard deviation of returns which are measures of market volatility to setup the initial stop.
Each asset has its own intrinsic level of volatility and it also changes with time so you don't want to use fixed dollar amount or 1% as a stop for all stocks you trade.
However at the beginning these rules of thumb are better then nothing.

 

[Bad_Badness]

Lind is correct. If I could have done 20 years of testing all over again, I would have made paper my main mode or Micro equivalent, and only on occasion gone live or full scale, to test the additional stress.

Since you are in academia, you can understand what sample size you need to test to make sure it "works as expected" With rare events or infrequent events of interest, it is easy to see, your testing should be in 1000's, not hundreds.

 

[Dollardogs]

Lind is correct. If I could have done 20 years of testing all over again, I would have made paper my main mode or Micro equivalent, and only on occasion gone live or full scale, to test the additional stress.

Since you are in academia, you can understand what sample size you need to test to make sure it "works as expected" With rare events or infrequent events of interest, it is easy to see, your testing should be in 1000's, not hundreds.

I totally get the need to back test and to paper money for a good while, but I'm also more of a learn by doing person, and I'm also in my 40s, so charting for 20 years before I put any money on the line isn't doable for me. Anyway, I was still a good bit ahead until these past few weeks, these 3 blunders put me now a little under, hence my deciding I needed to rethink things and run some stop loss ideas by some more experienced people.