Stops - do you want them?
- Thread starter mizhael
- Start date
Amen! I have traded and tested many strategies over the years and every time I add a physical stop to it a winning strategy becomes a losing strategy. Conclusion: The market is random and there is no substitute for experience.
I use a disaster stop that is well away from the market. Unfortunately, when it triggers -- and it has a few times -- my exit is usually well below or above the stop point because the market is gapping or movng so fast. Such are the risks of trading futures.
At any rate, I have found the best way to trade is to size up on the trades that have a high probability of success (based on your experience) and limit size on those that have a lower probability of success.
Average down -- the devils cousin? Not at all. Averaging down has its place provided your drawdown stays within predetermined levels of risk. If you're going to trade this way you need a circuit breaker to save you from those momentary lapses in judgment. And yes, I have had a few of those lapses -- don't we all.
To sum it up, back that stop off to a disaster stop. All they do is make the broker money. Averaging down is not a sin. It's quite a useful strategy in the right market -- that being a volatile market. It's suicide in a trending, quiet market if you're on the wrong side.
And to the guy who posted a Sharp Ratio doesn't put money in your bank account. That gave me a good laugh but boy, is it ever spot on.
I use a disaster stop that is well away from the market. Unfortunately, when it triggers -- and it has a few times -- my exit is usually well below or above the stop point because the market is gapping or movng so fast. Such are the risks of trading futures.
At any rate, I have found the best way to trade is to size up on the trades that have a high probability of success (based on your experience) and limit size on those that have a lower probability of success.
Average down -- the devils cousin? Not at all. Averaging down has its place provided your drawdown stays within predetermined levels of risk. If you're going to trade this way you need a circuit breaker to save you from those momentary lapses in judgment. And yes, I have had a few of those lapses -- don't we all.
To sum it up, back that stop off to a disaster stop. All they do is make the broker money. Averaging down is not a sin. It's quite a useful strategy in the right market -- that being a volatile market. It's suicide in a trending, quiet market if you're on the wrong side.
And to the guy who posted a Sharp Ratio doesn't put money in your bank account. That gave me a good laugh but boy, is it ever spot on.
So you are indeed using a stop loss. But if I'm right you exit before it is triggered in most cases.
Seeing how you use wide disaster stops and averaging down, I would guess you're trading an RTM strategy or something similar? that would explain why tight stops are actually couterproductive for you.
Correct but a RTM only works when the markets are volatile. When they are quiet this method doesn't work. Knowing when to use what strategy is no easy task but news and environment play a big role. There are just times when you know it's going to be one of those, "close your eyes and buy" days.