Tips for Taking Smaller Stops -- What works?
- Thread starter Ken_DTU
- Start date
Ding ding ding..... we have a winner 
Step 1) Measure the average market noise around the given price level
you are interested in for any given stock
Step 2) Place the stop outside the noise band
Step 3) Use your fricken money management, and adjust share count
to a reasonable level taking into account the new stop point.
peace
axeman
Step 1) Measure the average market noise around the given price level
you are interested in for any given stock
Step 2) Place the stop outside the noise band
Step 3) Use your fricken money management, and adjust share count
to a reasonable level taking into account the new stop point.
peace
axeman
Quote from axeman:
Ding ding ding..... we have a winner
Step 1) Measure the average market noise around the given price level
you are interested in for any given stock
Your comment seems very good, but please, Axeman, would you detail, maybe with an example, how to accomplish step 1?
TIA
the important is not to "keep your stops small ..." but to "keep your stops small AS POSSIBLE" how to quantify the "AS POSSIBLE" :
=>
"Why some people cry about their stops"
http://www.elitetrader.com/vb/showthread.php?s=&threadid=14574&highlight=mistake
Dow Jones intrinsec standard deviation for each scale intervention
<IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=212051>
I explained above that these numbers are just measures. What you will do with them will depend on your own system. But as for stops what I want to explain is that one of the frequent reason s novices lose is that their stop is too tight compared to the CAPABILITY of THEIR system (so I don't mean for ALL systems for example the possible best system of the world of Mr Profit ). Usually it can be that they don't have enough capital so they put a stop that is too tight compared to what their system would require.
I have already introduced the capability concept of a system but I have only done it once so I will do it again. As often the concept I cite comes from Quality Engineering field. One of the greatest advance in industry was to make a move concept from specification to tolerance by understanding that it is not enough to have specifications but that specifications must suit realities. If in real your system has an intrinsic capability of x0 you can't get x < x0 this is just wishfull thinking like praying god ! So the term too tight means that it is relative. I give the capability of the market not of anybody's trading system since I don't know it. But the anybody's trading system capability will most likely depend on market's system capability itself.
Take a look at the MAE range for all your signals.
You could try something like choosing a stop that is X% below
your entry price such that Y% of your stops will be hit.
Try using something like 2 standard deviations of your MAE
if you rarely want to be hit.
If that effects profitst too much, try 1.5, etc...
I just try ALL combinations, and pick the best
Thats what computers are for.
I think you will discover that you will end up using stops
much wider than you expected to avoid market noise
from randomly taking you out, as other posters have noted.
peace
axeman
You could try something like choosing a stop that is X% below
your entry price such that Y% of your stops will be hit.
Try using something like 2 standard deviations of your MAE
if you rarely want to be hit.
If that effects profitst too much, try 1.5, etc...
I just try ALL combinations, and pick the best
Thats what computers are for.
I think you will discover that you will end up using stops
much wider than you expected to avoid market noise
from randomly taking you out, as other posters have noted.
peace
axeman
Quote from Gepard:
Quote from axeman:
Ding ding ding..... we have a winner
Step 1) Measure the average market noise around the given price level
you are interested in for any given stock
Your comment seems very good, but please, Axeman, would you detail, maybe with an example, how to accomplish step 1?
TIA
Excellent intelligent posts... well reasoned .....
On the mental side of it, technical trading approach ... I find that doing things like trading several stocks near-simultaneously in a strong sector during an open range breakout helps me be less committed to any position ...
like dating several women at once and therefore easier to quickly dump one if they argue with you ...
TRADING SCENARIO =========================
Here's a scenario, I'm interested to hear your folks' take on it... it describes the type of trading I believe to be most accurate for 2- to 20 minute round trip Nasdaq stock daytrading during the first hour of each trading day ... eg my style in a nutshell:
example let's say it's Tuesday morning at 10:07 am and the SOX sector is selling down hard... strongest moving sector at -1.7% ... other sectors also red, but not as much (0.4% to -0.9%)..
the nas-100 eminis are taking out a low of the day, and the nas composite is taking out a 2-day low (selling down under low of prior trading day, plus current day)..
So...
as soon as each of the following stocks also takes out their 2day low, say just under a whole number on a 2-day low (And time/sales is showing net ratio sell-side And stock isn't extended near edge of it's daily trading range already And volume is increasing as they're selling down under key support lines) ... I look to short a small group of them, eg
BRCM- KLAC- LLTC- MXIM- SMH- XLNX-
Ok so now I'm short 6 stocks, say 700-1K shares each, and monitoring via cybertrader open P&L (green/red bars) ..
I follow them, let's say I get 2 that stop out small, eg .15 to .22, 1 that just chops around near the entry and I get bored and close it scratch/near even say 8 minutes later, and I get 3 that win, say +.32 and +.55 and +.41 ...
so the net P&L for that "set" is
+.32 +.55 +.41 - (.15 + .22) or 1.28- .37 = Net +.91
Now it took me 6 entries to get that .91... and the overall win/loss rate was just near 50%
It's the approach I believe to be best, based on my own papertrading/testing results over 6+ years.. but I want to 'tear it apart' and look for ways to improve it.. ideas?
===============================
ADVANTAGES:
-Should make it easier to keep small stops, using visual red/green bars in cybertrader interface, since:
a) one is playing a field of strong moving stocks in a strong sector, not being overly committed to single stock at a time (newbie style trading)
b) looking to bank small moves from a handful of positions in play, very dynamic, spraying out a handful of orders in a strong sector as each stock takes out it's successive s/r level, all done likely within the same 5-7 minute timeframe..
c) diversifies risk by trading a handful of volatile stocks, and allows one better "odds" of getting a stock that moves, versus picking just 1-2 stocks... as in"ok I'll just short KLAC" (but it was actually LLTC that then sells down the most during the next 20 minutes)
DISADVANTAGES:
a) requires a lot of detailed, quick attention to multiple signals, which is intimidating to new traders... who tend to over-analyze and try to justify (and take larger stops in), single position entries
b) requires a good 4+ monitor setup to see everything in motion at once
c) requires higher commish load since you're playing a wider field during volatile breakouts, in search of a handful of wins, eg casting a wide net in a volatile sector (therefore means need to trade larger size + more positions, requiring larger capital base).
I believe that's the right way to daytrade the Nasdaq markets, eg 2day open range high/low breakouts, trading a handful of most-volatile stocks in the strongest-moving sector, near-simultaneously..
the challenge I have, is that it's a difficult, advanced approach that seems to be too hard for many to use. but I believe it's the right one.
ideas as to a) how to improve it? and b) how to make it simpler to understand and use?
goal is to help traders not get overly committed to one-stock-at-a-time trading, to use a more professional, leveraged "play the field on a volatile breakout" style... and keep tighter stops in the process ..
ken
On the mental side of it, technical trading approach ... I find that doing things like trading several stocks near-simultaneously in a strong sector during an open range breakout helps me be less committed to any position ...
like dating several women at once and therefore easier to quickly dump one if they argue with you ...
TRADING SCENARIO =========================
Here's a scenario, I'm interested to hear your folks' take on it... it describes the type of trading I believe to be most accurate for 2- to 20 minute round trip Nasdaq stock daytrading during the first hour of each trading day ... eg my style in a nutshell:
example let's say it's Tuesday morning at 10:07 am and the SOX sector is selling down hard... strongest moving sector at -1.7% ... other sectors also red, but not as much (0.4% to -0.9%)..
the nas-100 eminis are taking out a low of the day, and the nas composite is taking out a 2-day low (selling down under low of prior trading day, plus current day)..
So...
as soon as each of the following stocks also takes out their 2day low, say just under a whole number on a 2-day low (And time/sales is showing net ratio sell-side And stock isn't extended near edge of it's daily trading range already And volume is increasing as they're selling down under key support lines) ... I look to short a small group of them, eg
BRCM- KLAC- LLTC- MXIM- SMH- XLNX-
Ok so now I'm short 6 stocks, say 700-1K shares each, and monitoring via cybertrader open P&L (green/red bars) ..
I follow them, let's say I get 2 that stop out small, eg .15 to .22, 1 that just chops around near the entry and I get bored and close it scratch/near even say 8 minutes later, and I get 3 that win, say +.32 and +.55 and +.41 ...
so the net P&L for that "set" is
+.32 +.55 +.41 - (.15 + .22) or 1.28- .37 = Net +.91
Now it took me 6 entries to get that .91... and the overall win/loss rate was just near 50%
It's the approach I believe to be best, based on my own papertrading/testing results over 6+ years.. but I want to 'tear it apart' and look for ways to improve it.. ideas?
===============================
ADVANTAGES:
-Should make it easier to keep small stops, using visual red/green bars in cybertrader interface, since:
a) one is playing a field of strong moving stocks in a strong sector, not being overly committed to single stock at a time (newbie style trading)
b) looking to bank small moves from a handful of positions in play, very dynamic, spraying out a handful of orders in a strong sector as each stock takes out it's successive s/r level, all done likely within the same 5-7 minute timeframe..
c) diversifies risk by trading a handful of volatile stocks, and allows one better "odds" of getting a stock that moves, versus picking just 1-2 stocks... as in"ok I'll just short KLAC" (but it was actually LLTC that then sells down the most during the next 20 minutes)
DISADVANTAGES:
a) requires a lot of detailed, quick attention to multiple signals, which is intimidating to new traders... who tend to over-analyze and try to justify (and take larger stops in), single position entries
b) requires a good 4+ monitor setup to see everything in motion at once
c) requires higher commish load since you're playing a wider field during volatile breakouts, in search of a handful of wins, eg casting a wide net in a volatile sector (therefore means need to trade larger size + more positions, requiring larger capital base).
I believe that's the right way to daytrade the Nasdaq markets, eg 2day open range high/low breakouts, trading a handful of most-volatile stocks in the strongest-moving sector, near-simultaneously..
the challenge I have, is that it's a difficult, advanced approach that seems to be too hard for many to use. but I believe it's the right one.
ideas as to a) how to improve it? and b) how to make it simpler to understand and use?
goal is to help traders not get overly committed to one-stock-at-a-time trading, to use a more professional, leveraged "play the field on a volatile breakout" style... and keep tighter stops in the process ..
ken
I use very small stops, so small people call me crazy. But its because I took a look at the timeframe I am trading and the ideal entry my system gives me. Then I look at rougly how many points would prove me wrong. I trade emini's and sometimes when I enter, I get exited like 2secs later. Happens a bit. But then again, since I have small stops, I shoot for 5:1 reward/risk ratio and even if I have a losing streak of a couple of days, I am still up for the week. Most people can't stand to get whip out and see it run, some can't stand the fact they lose more then they win. I lose more then I win, but I still make good cash. I can only get better with my entries. The profits take care of themselves, worry about your losers first.
My 2 cents.
My 2 cents.
You make two good, but distinct points that should be separated for novice traders:
1. You can't win them all - so if you need to minimize/mitigate the losses - however it needs to be clear that (depending on the various specific factors) doesn't necessarily mean keeping the stop interval microscopically small (for some people yes, for others no). Depending on entry method and volatility, excessively narrow stops can simply mean almost all your traders become immediatel losers. The key is to be able to cut off obviously losing trades as quickly as possible.
2. Your entries will improve - there are two sides to every trade - getting in and getting out. Both very important. You can have the greatest entry system but if you set stops too small for the instrument, they'll all end up losers. Conversely, you can have a great risk management scheme but a crappy entry system and thus still keep generating losers.
I agree AA,
The stops has to fit in context to the timeframe one is trading. A tight stop on a larger timeframe may not make sense, vice versa if you are trading on a smaller timeframe.
I am in for the long haul, therefore, protection of capital is very important to me.
The stops has to fit in context to the timeframe one is trading. A tight stop on a larger timeframe may not make sense, vice versa if you are trading on a smaller timeframe.
I am in for the long haul, therefore, protection of capital is very important to me.