Stop Losses are killing me

[bone]

Scaling is a great idea for an advanced, profitable trader who is adding to a winning position.
Scaling is a great idea for a swing trader who is taking a profit.
Scaling is a great idea for a commercial producer with inventory to lean on.
Scaling is a great idea for an institutional investor who seeks VWAP on a stock.

For a retail trader without a protracted track record of making profitable trades and growing his account equity - "scaling" is just another term for adding to a loser.

Which is ruinous. You can give away your Year (or worst) in a day.

Adding to a loser (we called it "cannonballing" on the floor) is such an insanely bad idea for a new trader who doesn't have a profitable trading system or even a good grasp on Risk vs Reward.

 

[Snuskpelle]

Here's one from today on S&P, also near the end of the day, this time I was long for the breakout, but got stopped out again. Seemed like a high probability trade, what do you think? One conclusion I'm drawing from my trading is that my technical trades aren't working out, be it head and shoulder, break outs, etc. I'm now more interested in momentum trades, like on 1 minute chart, fast execution, things of that nature. Price action like that is real and can't be faked. In other words, there is major emotion or news behind things like that. So maybe I can find those kinds of momentum trades and try to jump on them for quick moves. But my swing trades and orderly day trades aren't working out.

Just my own biased opinion:

"Breakouts" at sub-hour intraday chart is not worth bothering with unless you are some kind of natural trading genius, and even then you're probably not thinking about textbook breakouts.

Start of day was awesome, no point trading the rest. Make things simple by just trading the best conditions. It's far more important to be right than have a high trade count.

 

[Sequoia1321]

I like the idea and think it has merit. For every person that says its a bad idea, then just go long at your resistance level, and that will obviously fail enough times as well. In fact, if you came here saying that going long at resistance has caused you to lose money, people would more than likely be telling you that you are doing something wrong. So shorting at what you perceive is resistance is actually the better trade.

I do see that your resistance level was from June 26, which had 4 rejections at 3080, based on a 5 minute chart, so a bounce here made sense.

I think though that its not right to say, as your thread title shows, that stop losses are killing you. The action at this level wasn't really just running the stops. Price stayed above 3085 for over 5 minutes. When its just a poke of a level, by my definition, it reverses much faster, if it is indeed just a poke.

So now the question is, if this happens to you often, how to fix it? As I mentioned first, going long vs. short isn't the answer, cause this will more than likely also not work half the time. But we can work with the R:R numbers. Clearly, to make this profitable, if we are winning half of these trades, then our win needs to be bigger than our loss. If you want to use 5 points as a stop, look over how many times the trade would hit something like 10 points profit. Perhaps the trick will be to use a 3 point stop, and 5 point target, and this might prove to be profitable.

The last idea is scaling in. You can clearly see that price did eventually come back down to your 5 point profit, which would have been around 3075, but not until much later in the evening. The thing though is that if you see that 90% of a time, scaling in will save your trades, then perhaps this is something to look into. You of course need to adjust you max pain threshold, and be prepared to scale in when its going against you, but if it increases your win rate from 50% to 90%, it can work wonders. Granted, a big loss will still happen every now and then, but the lessening of the frustration of being run over all the time might have a positive psychological impact. Once again though, you need to have a firm grasp of where and how to scale in, and when to finally bail, and make sure this loss doesn't cripple you. With scaling in, I like to think along the lines of adding another contract when it goes 10 points against me, and then work on a break even exit, so that I can get out without a loss, even if price doesn't come down to my entry level.

I like the scaling in idea in general, and need to do it more. Regarding risk to reward, one problem I'm seeing with smaller risk to higher reward trades is that they often get stopped out and take longer to achieve. In other words, seems like the longer you're in the trade the more likely it is to stop you out. Also, if you're doing 1 to 2 risk to reward for example, and price moves up 1, now you're risking really 2 for 1 reward, so the true risk to reward has changed as soon as you make profit. I understand low risk to reward is classic and I hear people talk about it, but haven't been able to find a solution to this problem, other than constantly monitor the trade for signs of a wrong turn, or move the stop loss up some, which then might not always be good to do.

 

[NoahA]

Here's one from today on S&P, also near the end of the day, this time I was long for the breakout, but got stopped out again.

Am I reading this right? You went long at 3115 and got stopped at 3100, so you took a 15 point stop?

It looks kind of random. Either you need to develop a rational reason for why you go long for a breakout, or short the top where you think it won't breakout. But you also need some solid way to manage the trade. The other day you took a 5 point stop, today you took a 15 point stop. If you stuck with either just shorting resistance, you'd had a loss before and win now, and if you also kept to a 5 point stop, you wouldn't have a big loss today. If you did things the same every time, the result would have been better than it is now after 2 trades.

 

[bone]

I like the scaling in idea in general, and need to do it more.

See my post above. No, you really don't. Seriously. Scaling wouldn't improve your trading system. Scaling will only hasten the demise of your account equity. You need a different trading system and you need position management rules. That work.

 

[NoahA]

Regarding risk to reward, one problem I'm seeing with smaller risk to higher reward trades is that they often get stopped out and take longer to achieve.

This is exactly right. You can't get 10 or 15 point winners with only risking 3 points over and over again. This is even an excellent trade if you're just winning 50% of them. But don't fool yourself into thinking you can get this right even half the time. What really hurts though is seeing your original trade idea work, but then a tight stop took you out.

 

[Turveyd]

Try adding a simple 7sma High and 7sma Low it'll scale to any chart tf.

Object is to join momo early on at a position where your SL outside of that range is small compared to profiit potential.

Then Adapt to suite

 

[NoahA]

See my post above. No, you really don't. Seriously. Scaling wouldn't improve your trading system. Scaling will only hasten the demise of your account equity. You need a different trading system and you need position management rules. That work.

The reason why I mention scaling is because traders are always looking for the perfect entry, with a tight stop. And this is very difficult to achieve. Scaling is more so about building a position, not just averaging into a loser. Look, Sequoia shared this chart to illustrate the trade. First we need to realize that the chart goes from a low of 2980, to a high of 3140, so a range of 160 points. In this context, his little stop of 5 points shown via the purple rectangle is nothing. Where is the perfect entry for a trade where you can use a 5 point stop? Its impossible to find.

I outline the line in yellow, where one might assume a support level (although it obviously doesn't have the multiple rejections that 3080 had). But if we think, lets go long here, we can clearly see a series of lower lows over a few hours before it took off. In this case, would it not be profitable to add a contract every 10 points as it dropped? You enter around 3000, then add at 2990 and again at 2980 (but it might not even have reached 2980), and you can either exit the trade for zero loss or hang on for a profit.

Now I am not suggesting he does this to blow up his account. What I am saying is that if he is trading the micro ES, each 10 point loss is $50. So you can easily think in terms of having a max loss of $250 per trade, which allows for some scaling.

Of course if only using a 1 minute chart, then its best to just cut a loss at 5 points and move on to the next trade. But if you're gonna reference a chart like above, you either need to give the trade lots of room, or build up a position. Support and resistance levels are often pierced, but do return, and if you see how often this happens, then you need to build a strategy around this eventuality.

Also, I am inclined to short resistance and scale in, than to go long and scale into a breakout. This is simply because the breakout almost always comes back, even if only to test the breakout level. I will also be inclined to scale into a trade anywhere within a range. For example, if I want to take a long on the 29th in that chart, and I see the low is at 2980, I won't consider exiting until the low is taken out, but will add a contract if my entry initial goes against me. Maybe I enter at 3010, but I know that any flush down to 2980 in no way invalidates the long.

I guess this is what I'm saying. Price moving up and down might not be good for my entry, but it doesn't invalidate the trade idea.

 

[bone]

Now I am not suggesting he does this to blow up his account.

The guy is drowning and you’re throwing him an anchor.

He doesn’t have a coherent, tenable trading system; he has no rational position management rules to speak of - and you’re telling him to scale

 

[NoahA]

The guy is drowning and you’re throwing him an anchor.

He doesn’t have a coherent, tenable trading system; he has no rational position management rules to speak of - and you’re telling him to scale

Ok, that's a fair point. And it can be seen by him completely changing up the tactics for these 2 trades that he shared.