Stops

[Hydroblunt]

Quote from me1969:

A stop lying at the exchange is alway faster than any trader can pull the trigger (if he can).

Big mistake. NEVER leave a stop on an exchange that is seen by a MM or specialist. It's like giving them a blank check. Sometimes you have no choice, I did that stupid mistake only a couple weeks ago and that stop was purposely hit on a very thick stock called JPM. Should have used the trailing stop, that's a system stop.

They can't run the stops if they don't see them. They can only run levels where stops are most likely placed. That's just part of the game and there is nothing any trader can do about it, the shakeouts have to occur. You can guesstimate the shakeout and deviate your stop enough. Hopefully that can improve the accuracy of your stops.

 

[me1969]

Quote from Hydroblunt:

Big mistake. NEVER leave a stop on an exchange that is seen by a MM or specialist. It's like giving them a blank check.

Let's differentiate a bit. It always depends on the market and the volume you are pushing. If the market is thin and/or you play big then mental stops are the best if you or someone else is watching closely. Otherwise I prefer to leave the stops in the market because it cuts any second guessing in the first place. I think all this talk about market maker trying to hit the stops is quite overexaggerated (and lot of very successful pros like Linda Rascke tell you the same). I know a market maker for small and medium stocks and he told me, sure he is watching the book but trying to hit stops can be very tedious and it is not the way he is making the money

Segv,

using a stop loss point in order to find a good entry is the way I do it in order to find my risk point. By the way, I do intraday trading at the Eurex and most of the time I use bracket orders. It is just like betting that one point gets hit before the other one. probabilities is the name of the game (and surely a lot of psychology

 

[HolyGrail]

Quote from MajorUrsa:

Stops are not 'taken out'. They just get hit. It's a psychological thing. If you get out too early don't blame the stop. A 'mental' stop wouldn't have done better.

Ursa..

I'm sorry, but this is incorrect. STOPS ARE TAKEN OUT. It is not an accident. When a stock is about to change to an upward direction or vice versa a specialist may decide to take down the stock and buy it for himself along with some of the larger buyers. Placing hard stops makes this job easier, and gives him easy money.

Let's say a stock is selling for 50.00 and the specialist has an order to fill 500,000 shares at 47.50. If you have a stop at 47.25 you better believe he will hit that stop and buy along with it.

 

[gnome]

Stops... one of my favorite topics.

I'm a lonnnng time trader, so FWIW:

1. Wherever you put the stop, it's arbitrary. So either (1) put it in a logical place as per the charts, or (2) keep it small and expect to be stopped-out a lot... but at least you won't get nailed for one big hit, and you will capitalize on the trades that immediately run in your favor.

2. If you trade without stops, the market will eventually clean your clock. The stop can be hard or mental, but you must have an "uncle" point on the trade. If not, the market will eventually ruin you. If you're concerned about having your stop run, place it farther away and trade smaller.

3. Your trading career will mostly be defined by the "losses you didn't take".

Just think, if the dipstick running Amaranth had used a stop, he'd still be in business today.

 

[HolyGrail]

Quote from gnome:

Stops... one of my favorite topics.

I'm a lonnnng time trader, so FWIW:


2. If you trade without stops, the market will eventually clean your clock. The stop can be hard or mental, but you must have an "uncle" point on the trade. If not, the market will eventually ruin you. If you're concerned about having your stop run, place it farther away and trade smaller.

I don't think anyone is saying don't trade without a stop. I think some of us are saying just don't let the market maker know what that stop is.

 

[gnome]

Quote from HolyGrail:

I don't think anyone is saying don't trade without a stop. I think some of us are saying just don't let the market maker know what that stop is.

If he knows where it is and it's "within reach" for a gunning, then maybe it's placed too tight.

"Letting the Specialist/MM know where it is" shouldn't be any kind of issue at all.

 

[Humpy]

m1969
Could you please elaborate a bit on what are bracket orders exactly ?
Thx
pat

 

[me1969]

Quote from Humpy:

m1969
Could you please elaborate a bit on what are bracket orders exactly ?
Thx
pat

It means when my order gets filled a stop loss order and a limit order (exit) will be placed automatically in the market. Stop and limit order are linked, so if one gets hit the other will be canceled.

 

[Buy1Sell2]

Quote from Buy1Sell2:

Stops are for highly leveraged traders. Don't use so much leverage and you will be able to place your stop outside reaction highs/lows which is where they should be. Your stops are misplaced if they are getting hit that frequently.

 

[Thom Hartle]

One purpose for using stops is to limit the loss on a trade. But, consider the question of once you are in a trade, and going forward, are you still seeing technical evidence to stay with the trade. In other words, just because you have an initial setup that signals the trade, you don’t have to wait for market to reach your stop point and take the loss. It might be there was early evidence the trade was not working and waiting for your stop to be hit was a mistake. This is why collecting and analyzing market behavior (back testing) following an entry pattern can be helpful for better management of the trade then just taking the signal and watching the market move to your stop loss point.