Tight Stops
- Thread starter WaveTrader2004
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Lefty,
I'm just a plodder when it comes to trading but the longer I go the tighter my stops get.
here's my P/l for today (all after commission). I trade only 1 contract these days as I had some large losses when hodling up to five contracts.
Even trading the dax, which is 3 times as volatile as the ES, I consider 6 ticks wide for a stop. The trade goes my way quickly or I get out- and when I don't follow that rule I more often than not get burned.
I know other traders who are punting for large gains; they can accept larger drawdowns, many different ways to trade.
(1) I suspect that the longer one trades, the better the entries become, and if the entry is good, the stop becomes almost irrelevant. It's always necessary, in case one is attacked by a severe case of stupid, but that's the traders fault, not the stop's.
(2) I also consider 6 ticks to be wide, or at least their equivalent on the NQ (I still don't understand why so many are so attracted to the ES, but then I guess I don't have to). Like you say, if it doesn't do what you expect it to do, why be there at all?
(3) It's not necessary to accept larger drawdowns when going for larger gains, though one can if one wants to. The drawdown is a function of the entry. If the trade is good, why exit before the target? Of course, this means far fewer trades, but that's a plus in some quarters.
Lefty, really appreciate your insight and thoughtful comments.
I have been a trader for 7 years in equities, options and futures (although only day trading the futures market since May 2003 everyday, and only the ES since August 2003).
I tend to concentrate on what is rather rare in intraday trading, trading major positions.
I only trade 1-3 trades per day max in the ES. Usually my stops are around 6 ticks. Very rarely do I get stopped out. For example, in 6 trades last week I had no stop outs for a loss. Having said that, I often get stopped out at breakeven or for a small profit as I aggressively trail my stops. I never re-enter trades once stopped out.
Just giving you some information so you understand where I am coming from. 6 tick stops are not only doable they work great, if you are very selective with your entries. Making sure you enter with precision and patience, however, is key.
Different horses for courses. Many traders laugh at me when they hear how I trade on an intraday basis. They cannot believe anyone who is successful trades so infrequently, with stops so tight.
I am sure there are probably many different traders out there using every possible strategy quite successfully despite the incredulity of some traders to that style. In fact, maybe that is why it works... After all, I do believe you need an edge that is different from every other trader.
FYI: I know some big guys (100 contracts plus) who do some 'do or die trades' with 100 contracts using a 1 point stop and 1-2 points profit. When you are trading big size you don't want to take too much heat on your stop. I also know some brokers who trade their customer accounts using 5 point stops for 4-5 contracts and that seems to work for them.
Hi London and everyone:
With respect to Mr. Cutten's comment, I agree that much hedging is done with bond futures, that is a given. However in addition to that hedging, there is a tendency for some speculators to adjust and add to the hedge using other instruments. As it turns out, often these speculators represent big institutions. They are the ones who have figured out that the common sense methods for determining Value At Risk and Hedge Ratios often understate risk.
With respect to using tight stops, I see much merit in both approaches. Looking at my record, I see that I am not good at picking entries. I believe that is why I need to use the approach that I favor with wider stops. Believe me when I say I would like it if it were otherwise. I tend to be impatient and instead of letting my setups develop, I sometimes try to enter early and front run my own system. Today is a prime example. I entered early twice and was stopped out. Knowing that I did not have a good feel for today's action, I did not wait for a full stop out. I am done for the day, however because I see that I am out of sync with things. Now the problem is that I hate to wait on the sidelines. I keep looking at the charts and I will probably see a setup this afternoon and want to hit it. Ha. Good luck everyone. Lefty
With respect to Mr. Cutten's comment, I agree that much hedging is done with bond futures, that is a given. However in addition to that hedging, there is a tendency for some speculators to adjust and add to the hedge using other instruments. As it turns out, often these speculators represent big institutions. They are the ones who have figured out that the common sense methods for determining Value At Risk and Hedge Ratios often understate risk.
With respect to using tight stops, I see much merit in both approaches. Looking at my record, I see that I am not good at picking entries. I believe that is why I need to use the approach that I favor with wider stops. Believe me when I say I would like it if it were otherwise. I tend to be impatient and instead of letting my setups develop, I sometimes try to enter early and front run my own system. Today is a prime example. I entered early twice and was stopped out. Knowing that I did not have a good feel for today's action, I did not wait for a full stop out. I am done for the day, however because I see that I am out of sync with things. Now the problem is that I hate to wait on the sidelines. I keep looking at the charts and I will probably see a setup this afternoon and want to hit it. Ha. Good luck everyone. Lefty
Hi everyone,
I think a lot depends on your personality and approach. For many people, my approach would kill them because it is very boring and you need extreme patience.
My trade method is either to get stopped out at the initial stop or trailing stop or for the profit target to be reached. So, holding the position until the stop or the fruition of the trade. Sometimes this can take several hours and I have held positions up to 5 hours on occasion.
Today was a slightly frustrating day for me as well. I got stopped out at breakeven on one short trade and the long trade didn't quite confirm to all of my parameters so I didn't take the trade (then it proceeded to rally to my profit target; no problem, my procedures are designed to keep me safe not to capture every move). So, at this point I am done for the day and week.
Have a happy Thanksgiving. I am sure looking forward to a full week of trading next week.
Understanding synchronization is a biggie, or at least it was for me. I understood it better when I recognized that being in synch required being detached from the trade (achieving and maintaining objectivity), and being detached from the trade required incorporating "failure" into the system, not failure in the sense of loss or of being wrong or of being incompetent but in the sense of receiving the message that the market was sending and using that to make the system better. If I don't understand the message, I just stop until it becomes clear. If it never becomes clear that day, so what? At least I haven't spent the day throwing myself against the bars.
I've been trying to analyze my own performance pace and how it relates to my days success or not. I notice certain patterns for instance my best days I've done around 5 trades (this would be mix of stock trades and futures) and my worst days I've done up to 20. So I'm training myself to analyze my day during the day with this as a benchmark. Yesterday I had 3 losing and 2 breakeven trades (I'm not very good in general) so I knew according to my own record that this was not likely to be a good day for me, so I stopped. Today after 5 trades I had 3 winners and 2 small losses so I knew I could probably be just a bit more aggressive but I should be aware that I have already reached the performance of my better trading days. I also think the size of your stops is related to what time frame you are trading. But, I have decided for myself that I no longer will put my stops at the point of pattern failure (lets say on a bullflag) but rather on the way to that point. If I get in a trade and it doesn't keep following through in my directon I need not wait to get rinsed at the low tick. In fact it is nifty to figure out the rinse point on a 2min bullflag on the es, put your entry there and get out at the next spike lower then the top. I would always get pushed around like this on silly old bullflags and sometimes I can take advantage of the next guy now.
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