The "stop thread" is my favorite of the auto-repeating ET threads.
Tight stops vs. loose stops vs. no stops
- Thread starter Scarab
- Start date
Scarab, honestly, man, trade the lowest possible size (or simulator, real time) until you figure all this stuff out. There is no "answer".
As mahraja said use mental stops. I think setting hard stops will
make you get out of a lot of good trades and most of the times
u will have better prices to exit even if you were wrong. But still use hard stops further away.
When you enter a trade predetermine a price where you think you will be wrong. Once the price reaches that area where you
are wrong you should start planning your exit, then use the market noise to get a decent exit.
Have a hard stop further away in case you are not being objective, your system crashes or the market is ramping/crashing real fast.
Most good traders will generally get out before their stop is reached. You need to conitinously monitor your trade, you may realize right after initializing a trade that you are wrong, there is no point in waiting for the stop to get hit in that trade you need to get out right away.
Some traders also use a time stops where if the trade does not work out in a certain time they will get out.
make you get out of a lot of good trades and most of the times
u will have better prices to exit even if you were wrong. But still use hard stops further away.
When you enter a trade predetermine a price where you think you will be wrong. Once the price reaches that area where you
are wrong you should start planning your exit, then use the market noise to get a decent exit.
Have a hard stop further away in case you are not being objective, your system crashes or the market is ramping/crashing real fast.
Most good traders will generally get out before their stop is reached. You need to conitinously monitor your trade, you may realize right after initializing a trade that you are wrong, there is no point in waiting for the stop to get hit in that trade you need to get out right away.
Some traders also use a time stops where if the trade does not work out in a certain time they will get out.
Hi:
After a while, if you last long enough, you will figure out that stops are simply tools. Depends on how skillful you are, but when you know what you are doing, you will use stops to do two things.
1. To protect capital. Since the outcome of each of your trades is random, you want to limit individual loses so you can continue long enough to realize any statistical edge you might have.
2. To inform you when you are wrong. Skillful traders place their stops so that IF THEY GET HIT, IT IS BECAUSE THEY ARE CLEARLY WRONG. Knowing when you are clearly wrong is important, because you only have so much time in the day to find trades, and you want to move on to the next opportunity quickly.
It has taken me a long time to figure it out, but now I focus on WHERE to place my stops. Then I look at how much risk I have, and finally, I try to anticipate what kind of profit I can realize. If the risk is too high, this means I can't take the trade (once again, skillful placement of stops protects you if you do it right). Keep an open mind about stops, and you may find they help you too. Best Regards, Steve46
After a while, if you last long enough, you will figure out that stops are simply tools. Depends on how skillful you are, but when you know what you are doing, you will use stops to do two things.
1. To protect capital. Since the outcome of each of your trades is random, you want to limit individual loses so you can continue long enough to realize any statistical edge you might have.
2. To inform you when you are wrong. Skillful traders place their stops so that IF THEY GET HIT, IT IS BECAUSE THEY ARE CLEARLY WRONG. Knowing when you are clearly wrong is important, because you only have so much time in the day to find trades, and you want to move on to the next opportunity quickly.
It has taken me a long time to figure it out, but now I focus on WHERE to place my stops. Then I look at how much risk I have, and finally, I try to anticipate what kind of profit I can realize. If the risk is too high, this means I can't take the trade (once again, skillful placement of stops protects you if you do it right). Keep an open mind about stops, and you may find they help you too. Best Regards, Steve46
Setting very tight stops will get you shredded to death, and usually results in getting you way off rhythm (most get stopped out exactly when they should be entering). Conversely, trading with "no stops" is one of the fastest ways you can blow out. These are esp true for currencies. Time stops are just as important as price stops; if after you enter trade the price movement doesn't respond as you expect, just exit at market.
For longer term trades some of the best entries for trades are entering after the majority get stopped out; so in effect, don't put stops where everyone else's are. JMO
For longer term trades some of the best entries for trades are entering after the majority get stopped out; so in effect, don't put stops where everyone else's are. JMO
I have not made $10K per month yet, as I have only been trading live little over a month.
Be that as it may, lemme relate to you a trade I was just in - and how it relates to tossing stops. Note that I will not give away my structure of how I made trade determinations - that part is up to each trader individually how they do it.
YIM pops up, my best trading buddy says, "Hey, Sam, wanna make a quick 50 points, easy money?"
Who doesn't.
I sez, "Sure!"
He goes, "USD/JPY starting to spike. They (the spikes) ALWAYS go down. Set a limit short order @ thus and thus price and just forget about it."
Sounded good.
I checked out USD/JPY and sure enough, a spike was forming. Good enough for me cause *I* wanted 50 easy points for sure!
That was back on Feb 17th, last month, my first trade into it was under 106.00 if my (traumatized) memory serves me right.
(I have a small account just having started trading live) It turns out that my first short trade into that USD/JPY spike would weather a 700 point (drawdown) climb over the next 3 weeks.
And, mind you, I continued shorting at each X-amount of points up, fully expecting that at each level it would surely turn and fall, making me rich(er).
My crowning achievement, like a dumbass, was creating the ultimate inverted pyramid right near the top (it finally peaked at 112.36) by doubling my overall trade size.
Why did I do that? Well, I figured I was a goner so I might as well try to rescue my own arse by attempting to mark the price to market - perhaps the puppy would drop a quick 50 to 100 points I could bail with minimum damage. That was at around 111.00. At that time it continued climbing, and climbing ... torturing me every point of the way as I watched my entire account inching closer to Trading In The Vaporized Zone.
*sigh*....
I walk sometimes at night before I trade the UK session (I am in PST zone) and it was during one of these walks that I decided that some shit just definitely didn't add up.
No, after checking and rechecking my trade objectives, tumbling just about every factor on the globe over in my mind a zillion times, I still could not come up with a structure that would account for my being margin called. In other words, had I to do the trade over again I would have probably made short trades all the way to the peak of 112+ like I had done, only a little differently - making the trades no larger than one unit each while getting my dick sucked by a naked 18 year old Jamaican broad straight out of a Google Image search, for instance.
The problem, it turned out, was in the structure of the climb and some important bullshit news announcements that were (falsely) hammering the spike thus driving the market/spike higher and higher against me in a market mania move. That those news headlines would be the single cause of me losing my trading account was unacceptable.
I HAD to find the reason for my own survival. Not just give up and give in to the seeming reality that I was just the ultimate F-up who was a born loser and was just losing yet again to more superior minds / forex traders: The old familiar Sam's just a loser course. No, I had to change. Change into a winner. On THIS trade.
If I didn't, I was going to get bagged - so much for my illustrious trading career.
As I sat a 1000 feet up (actually it was closer to 50 feet but at my age it seems like a 1000) on a rock late at night in deep thought while staring at my life coming to an end (my life as a trader) it occured to me... I may NOT be able to get the entire position flat (now numbering 200000 units and quickly ascending towards a margin call number level - images of the memory of the first trade at under 106 haunting me like the ghost of a distant star I now beheld plainly gazing up into the night sky - replays of the other YIM message by my friend 3 days later "Sam, I got a margin call." re-enforcing a reality that this trade was a killer - shaking the deeper reality awake in me - in currencies it's all connected and interrelated) - but I MAY be able to back out the last 100K unit trade, if the price just fell... some.
Grand idea - Yes, it worked! A few days later one particular time it DID fall back close enough to my 100K position to BUY my way out (little over $200 as I recall) thus giving me an extra 600 points breathing space (raising my margin call price level) before I reached the account liquidation level. Not a bad exchange. Nope.
Moving quickly to the finish of how I survived a 700 point drawdown with no stop I'll say this: I was being held between life and death up at that level. I was staring at over -$3500 in my P/L indicator more than once.
The temptation to "save" the overall account by closing the trade taking a $3500 loss was pounding on me at times, really hammering me.
Inside I felt something was wrong that wasn't my trade structure.
I turned out a while later I determined what that was.
See, (and, go ahead, call me "insane") the market was interpretating Japan ("yen intervention") as being the driver behind the spike, when, in reality, that was NOT true, even though Japan/China was, according to news sources, taking credit for the huge 700 point move due to their "intervention."
Be that as it may, Japan and China had just been part of a G-7 agreement against "brutal currency moves."
AH! A hole in the enemy's wall! Japan is PROHIBITED from both creating OR reinforcing "brutal currency moves."
Well, I could use that knowledge and did - let's put it that way. The great USD/JPY spike was now to be capped and on its way down.
It eventually hit 106.41, I believe, and all my trades were closed with a profit. I was actually successfully scalping the pair for a few days before it reached that level. I watched the pair DROP 200 points right before my face (no, I did not make any money on that drop even though I was short trading it - don't ask).
Now then, had I traded with stops I would have been butched all the way up and probably had lost the majority of my trading cap before it even reached 112.34, agreed?
Instead I used my brains and thought. By manipulating both the trade and my structure some I survived.
Lesson: Do you have to use a stop always? As I have found, no.
The key to winning trades lies in successful trade management / risk management as opposed to just setting dumb stop losses.
This is why I am always telling guys to trade only in relation to your *true* account size. If you have the fire power of a George Soros sure you can trade those big trades.
But most guys (the ones that lose) trade minimum 100K contracts, many times much larger - chasing $50 per pip dreams.
Well, unless you got an account size to be able to handle and manage that size trade should it go against you (most trades will at one point or another) you are asking to get quick killed via a margin call or slowly eaten alive by getting your stops nailed. Either way it's only a matter time before you meet the Grim Trading Reaper.
Listen guys, you GOT to to know your instruments and market in which you trade. Even if you have deep pockets, if you trade with blinders on it will come back to sting you in time.
To be a successful trader you MUST understand dynamics of the trade(s) you are about to make, and I mean knowing the probabilities of driving price movement factors before and during a trade.
There is just no substitute for doing your homework (wise advice from someone who flunked 3rd grade and dropped out of high school).
In trading, so much of the time we walk in the dark with a flashlight shining just ahead of us - we adapt and make minor / major adjustments to what is suddenly upon us that just a moment ago we didn't see.
It may be up to us but we live or die off of each trade.
Sam
Be that as it may, lemme relate to you a trade I was just in - and how it relates to tossing stops. Note that I will not give away my structure of how I made trade determinations - that part is up to each trader individually how they do it.
YIM pops up, my best trading buddy says, "Hey, Sam, wanna make a quick 50 points, easy money?"
Who doesn't.
I sez, "Sure!"
He goes, "USD/JPY starting to spike. They (the spikes) ALWAYS go down. Set a limit short order @ thus and thus price and just forget about it."
Sounded good.
I checked out USD/JPY and sure enough, a spike was forming. Good enough for me cause *I* wanted 50 easy points for sure!
That was back on Feb 17th, last month, my first trade into it was under 106.00 if my (traumatized) memory serves me right.
(I have a small account just having started trading live) It turns out that my first short trade into that USD/JPY spike would weather a 700 point (drawdown) climb over the next 3 weeks.
And, mind you, I continued shorting at each X-amount of points up, fully expecting that at each level it would surely turn and fall, making me rich(er).
My crowning achievement, like a dumbass, was creating the ultimate inverted pyramid right near the top (it finally peaked at 112.36) by doubling my overall trade size.
Why did I do that? Well, I figured I was a goner so I might as well try to rescue my own arse by attempting to mark the price to market - perhaps the puppy would drop a quick 50 to 100 points I could bail with minimum damage. That was at around 111.00. At that time it continued climbing, and climbing ... torturing me every point of the way as I watched my entire account inching closer to Trading In The Vaporized Zone.
*sigh*....
I walk sometimes at night before I trade the UK session (I am in PST zone) and it was during one of these walks that I decided that some shit just definitely didn't add up.
No, after checking and rechecking my trade objectives, tumbling just about every factor on the globe over in my mind a zillion times, I still could not come up with a structure that would account for my being margin called. In other words, had I to do the trade over again I would have probably made short trades all the way to the peak of 112+ like I had done, only a little differently - making the trades no larger than one unit each while getting my dick sucked by a naked 18 year old Jamaican broad straight out of a Google Image search, for instance.
The problem, it turned out, was in the structure of the climb and some important bullshit news announcements that were (falsely) hammering the spike thus driving the market/spike higher and higher against me in a market mania move. That those news headlines would be the single cause of me losing my trading account was unacceptable.
I HAD to find the reason for my own survival. Not just give up and give in to the seeming reality that I was just the ultimate F-up who was a born loser and was just losing yet again to more superior minds / forex traders: The old familiar Sam's just a loser course. No, I had to change. Change into a winner. On THIS trade.
If I didn't, I was going to get bagged - so much for my illustrious trading career.
As I sat a 1000 feet up (actually it was closer to 50 feet but at my age it seems like a 1000) on a rock late at night in deep thought while staring at my life coming to an end (my life as a trader) it occured to me... I may NOT be able to get the entire position flat (now numbering 200000 units and quickly ascending towards a margin call number level - images of the memory of the first trade at under 106 haunting me like the ghost of a distant star I now beheld plainly gazing up into the night sky - replays of the other YIM message by my friend 3 days later "Sam, I got a margin call." re-enforcing a reality that this trade was a killer - shaking the deeper reality awake in me - in currencies it's all connected and interrelated) - but I MAY be able to back out the last 100K unit trade, if the price just fell... some.
Grand idea - Yes, it worked! A few days later one particular time it DID fall back close enough to my 100K position to BUY my way out (little over $200 as I recall) thus giving me an extra 600 points breathing space (raising my margin call price level) before I reached the account liquidation level. Not a bad exchange. Nope.
Moving quickly to the finish of how I survived a 700 point drawdown with no stop I'll say this: I was being held between life and death up at that level. I was staring at over -$3500 in my P/L indicator more than once.
The temptation to "save" the overall account by closing the trade taking a $3500 loss was pounding on me at times, really hammering me.
Inside I felt something was wrong that wasn't my trade structure.
I turned out a while later I determined what that was.
See, (and, go ahead, call me "insane") the market was interpretating Japan ("yen intervention") as being the driver behind the spike, when, in reality, that was NOT true, even though Japan/China was, according to news sources, taking credit for the huge 700 point move due to their "intervention."
Be that as it may, Japan and China had just been part of a G-7 agreement against "brutal currency moves."
AH! A hole in the enemy's wall! Japan is PROHIBITED from both creating OR reinforcing "brutal currency moves."
Well, I could use that knowledge and did - let's put it that way. The great USD/JPY spike was now to be capped and on its way down.
It eventually hit 106.41, I believe, and all my trades were closed with a profit. I was actually successfully scalping the pair for a few days before it reached that level. I watched the pair DROP 200 points right before my face (no, I did not make any money on that drop even though I was short trading it - don't ask).
Now then, had I traded with stops I would have been butched all the way up and probably had lost the majority of my trading cap before it even reached 112.34, agreed?
Instead I used my brains and thought. By manipulating both the trade and my structure some I survived.
Lesson: Do you have to use a stop always? As I have found, no.
The key to winning trades lies in successful trade management / risk management as opposed to just setting dumb stop losses.
This is why I am always telling guys to trade only in relation to your *true* account size. If you have the fire power of a George Soros sure you can trade those big trades.
But most guys (the ones that lose) trade minimum 100K contracts, many times much larger - chasing $50 per pip dreams.
Well, unless you got an account size to be able to handle and manage that size trade should it go against you (most trades will at one point or another) you are asking to get quick killed via a margin call or slowly eaten alive by getting your stops nailed. Either way it's only a matter time before you meet the Grim Trading Reaper.
Listen guys, you GOT to to know your instruments and market in which you trade. Even if you have deep pockets, if you trade with blinders on it will come back to sting you in time.
To be a successful trader you MUST understand dynamics of the trade(s) you are about to make, and I mean knowing the probabilities of driving price movement factors before and during a trade.
There is just no substitute for doing your homework (wise advice from someone who flunked 3rd grade and dropped out of high school).
In trading, so much of the time we walk in the dark with a flashlight shining just ahead of us - we adapt and make minor / major adjustments to what is suddenly upon us that just a moment ago we didn't see.
It may be up to us but we live or die off of each trade.
Sam
HARVARD CRUCIBLE
"When he entered Harvard University in 1960 he was not a squash player. One year later he won the national junior title and by the time he graduated from those hallowed halls, which among other things housed 42 squash courts and host an unparalleled squash dynasty, Niderhoffer was the National Intercollegiate squash champion."
Nah, I ain't even in his leigue.
Besides, he doesn't have a neit Yahoo Instant Messenger logo on his Elieder Trader signature.
: /
Sam