Stop losses. Are they the tools of winners or losers?

[PocketChange]

Traditional Stop Limit Orders trigger the first time market touches or passes through price.

Markets Oscillate... ES runs in a 4 - 6 tick lane. If you use a Trailing Stop Delta = 4, You are out on the first 4 tick pull back. If you use any type of limit order placed in advance you get in or out on first pass. You will often get stopped out when trying to let profits run. First to the Party and First to Exit.

Conditionally triggered orders may work better depending on your strategy.

ie. Trigger Order on 2nd or 3rd pass through price.

Let market pass through your target price + 2 ticks and then send buy order to add to a position on pullback.

 

[jprad]

Quote from ES.Dreamer:

That's where averaging down enters the picture, to cheat the math.

What's averaging down's greatest fear ? Risk of blow of up.

How do you prevent such risk ? With an emergency stop.

And the problem is solved.

Adding to a loser must not equate adding to a loser forever.

Recognizing this made a tremendous difference in my trading, tremendous.

ESD

While I completely agree in principle, I disagree on terminology.

IMHO, "averaging down" is associated with buy & hold AKA "dollar cost averaging."

"Legging in" has a different connotation. Not only does it infer the obvious, that picking the exact top or bottom is a losers game, it implies that you're gradually entering into your position based on two key factors being true; the context for the trade is still valid and you're within the price zone for optimal entry.

 

[[Proximo]]

I don't use hard stops for some of the reasons mentioned above. I need to see definite signs that I'm wrong before I exit.

I also don't put a full position on @ one time. {except in certain situations}.

 

[jprad]

Quote from PocketChange:

Let market pass through your target price + 2 ticks and then send buy order to add to a position on pullback.

A fixed 2 tick cushion seems pretty arbitrary.

You might want to backtest one simple change; the stop is only triggered once the current bar closes beyond the stop or after some multiple of volatility beyond the stop is touched.

 

[hermit]

Stops just like entry or exits need to be designed based on strategy requirements, it is rather pointless to generalize their usage.

 

[0008]

Quote from Pension_Admin:

You know, there was a guy in here who average down. He is a nice and humble person as well. He made a lot of money and he traded so well that he even started a hedge fund. Unfortunately, we haven't heard from him since. What ever happened to him is anybody's guess.

It's always easier to make money when you don't use stop or when you average down. Unfortunately, losing your whole account is as easy.

There are some lucky traders who made a lot of money with no stop loss or with average down, started to use good risk management technique before the market take all the money back. Unfortunately, I don't think there are a lot of them out there.

PA

yes! so true

no stop and average down can make money most of the time, but one mistake can wipe you out, just like selling naked options

 

[bighog]

Like getting married, ...to have and to hold from this day forward, for better for worse, for richer for poorer, in sickness and in health...

Until someone better comes along.

Stops are a part of the game of money just like getting married is a game of chance. You deal with the cards drawn.......... for better for worse.

Then you move on to the next chapter of life or to the next trade.

 

[usman88]

I dont use stops and have been a successful trader for the last 3 years now and even run my own small hedge fund.

What everyone here is talking about is to use stops or not. Neither will ensure success or failure. Every trade warrants a different combination. Ill give you guys an example.

We primarily trade crude oil futures. During the last 6 months or so, we have not used a single stop on our long trades. Once we even faced a drawdown of even $10/lot ($10,000/lot) but our long term view was a $100 oil therefore we kept on averaging. In the end everyone knows where the oil is. We made a vhandsome returns. On the other hand all short trades we made had stops.

This example illustrates that one has to use stops in conjunction with many other factors such as ones long/medium/short term view on any security. One also has to keep in mind the fact that the big players out there do run other peoples stops. Stop hunting is a fact. Similarly there are various other factors which one has to keep in mind

 

[increasenow]

Quote from peilthetraveler:

I dont use stop losses, but some people freak out on here when i tell them that. They say that the majority of traders lose money, but i notice the majority of traders in here use stop losses... Im wondering if there is any relation. I've only ever met 1 guy that makes 7 figures per year trading and he doesnt use stops either (and its worked well for him the 20 or so years he has been trading) So i just want to get some honest information out of you guys.

If you make 10 trades with 10 stop losses, on average, how many of those trades get stopped out? I'm suspecting that its a higher percentage (like 50% or more) so i just want to be sure.

you can get away with not using them trading mini forex..but...can't trade the ES (mini sp500 futures) without them...

 

[TraderZones]

Quote from usman88:

Once we even faced a drawdown of even $10/lot ($10,000/lot) but our long term view was a $100 oil therefore we kept on averaging.

Newbie 101 approach...