Tips for Taking Smaller Stops -- What works?

K

Ken_DTU

Here's an interesting trading question -- what have you all found works to help remind you to keep your stops small?

The challenge: many folks seem to have a "do or die" mentality and are overly-committed to single positions working out, and subsequently take larger stops in pursuit of larger wins (big ouches in search of homeruns, which is not effective), versus a more "trade many positions and take smaller stops on those that don't work out" approach...

rationalizing losing positions etc, stepping out their trading timeframe (eg making a losing daytrade into a "swingtrade")... a lot of the trading demons that plague traders... come out during the management of small stops...

Do you personally have any tips you'd like to share on what you've done, either with software, or discipline, or specific technical patterns, to help remind you to "keep your stops small?" ...in recent weeks' trading?


thanks all,


ken
 
I tend to have the exact opposite problem: I place my stops too close. I'd always heard the saying "learn to love small losses." I guess I got that too ingrained in my head.

I simply look for the nearest strong support/resistance point on a 30 min chart and place the stop a few ticks beyond that. That stop generally keeps me out of a shaky position, but is large enough to let me ride for a couple of days' movement. Sometimes I try to get cute and enter a swing trade with a one point stop in the S&P.......I'd think I'd learn, because that never works for me.
 
you can make your stops as tight as you want to when your entry is good. (ala great defense is a great offense). In my own trading i try to enter as close to as support/resistance level as i can, have tight stops right past the level. Making the probablilities on my side.

Come in at the best point you can, if you the position goes against you, you know, confidently, that you were wrong.

All stops are is acknowledgement that you were not in tune with the market. Reevaluate what threw you off.

Move on to the next trade.
 
One thing that I have learned is that a lot of the "rules" that you hear for trading are a paradox because there are a lot of good rules but they only work if it is good for YOUR SYSTEM/METHOD.

So, I keep my stops small on my scalping system, because that is what works well for this system. My risk to reward is 1:1. Yep, big traditional rule breaker there. But the system works about 73%+ win percentage.

On my swing trading method, I usually get 2:1 risk to reward and keep the stops a little looser. If QQQ is being traded long with the last swing low at 34.27, I like to give it more than what I think is an obvious stop. So for 34.27 you have the round number at 34.2 where a stop could be 34.19 or .18 I'll go to 34.14
Of course this is not hard and fast because the profit target is taken into consideration.

But, one hard fast rule, where one does decide to put the stop, whether large or small: IT IS YOUR STOP AND MUST BE TAKEN. PERIOD.
 
Quote from Ken_DTU:

The challenge: many folks seem to have a "do or die" mentality and are overly-committed to single positions working out, and subsequently take larger stops in pursuit of larger wins (big ouches in search of homeruns, which is not effective), versus a more "trade many positions and take smaller stops on those that don't work out" approach...
More...

Ken, dont you operate a chat room service? if your members are having this problem then it is probably because they dont understand why they are trading.. its so important to know from hours of backtesting/papertrading that your stop should be .25 because the numbers work out better than at .40.. also its true the person should know what happens to their win rate if they move the stop to .15.. etc etc..

trying to be right is the kiss of death.. there isnt "right".. no one can know or predict what the market will do next.. we just trade the probabilities..

-qwik
 
I've done a LOT of computerized testing on stops. These tests have been done on equity trading systems, EOD data.

Given those parameters, tight stops are system killers. I don't care what all the experts say, my testing has convinced me that with all the EOD systems I tested, tight stops are a terrible idea.

I realize a lot of people will contest this and that's fine. They can take their anecdotal evidence to the poor house with them.

I'm not the only one who has done testing to confirm this.

Now...intraday systems, scalping systems, and others may work with tight stops...dunno about that.

m
 
Quote from MackieMesser:

I've done a LOT of computerized testing on stops. These tests have been done on equity trading systems, EOD data.

Given those parameters, tight stops are system killers. I don't care what all the experts say, my testing has convinced me that with all the EOD systems I tested, tight stops are a terrible idea.

I realize a lot of people will contest this and that's fine. They can take their anecdotal evidence to the poor house with them.

I'm not the only one who has done testing to confirm this.

Now...intraday systems, scalping systems, and others may work with tight stops...dunno about that.

m
More...

I havent done computerized testing of my stops, but my experiences show the exact same thing. I trade from hourly - 8 hour charts mostly and Ive found good trades can be stopped out far too readily due to my conservative stops (something I learned/read/was told is the only way to go). However I do far better with slightly looser stops (still keeping a good risk reward ratio of 3+:1), taking the odd bigger loss does me better (financially and mentally from the frustration) than getting stopped out more often on positions that just needed a bit more wiggle room before making a good profit.
 
Someone has figured it out.

Agree 100%.


peace

axeman


Quote from MackieMesser:

I've done a LOT of computerized testing on stops. These tests have been done on equity trading systems, EOD data.

Given those parameters, tight stops are system killers. I don't care what all the experts say, my testing has convinced me that with all the EOD systems I tested, tight stops are a terrible idea.

I realize a lot of people will contest this and that's fine. They can take their anecdotal evidence to the poor house with them.

I'm not the only one who has done testing to confirm this.

Now...intraday systems, scalping systems, and others may work with tight stops...dunno about that.

m
More...
 
It's not as simple as "small" vs. "large" stops (except maybe in scalping). If you don't factor in the kind of entry you're taking (e.g., if you're swinging into a reversal at an SR you can probably be fairly tight on the other side of the SR while an entry upon breakout might need to allow for a possible temporary retrace) and the inherent volatility of the particular instrument (otherwise basic price froth will routinely chop you up). Failure to consider those factors can often turn an otherwise good entry into a loss due to a premature stop. Too narrow stops is at least as big (if not bigger) a problem for new traders than too large stops.
 
I also do better with looser stops, usually just above / below the nearest swing H/L. "Tight" stops seem to practically invite the market to stop you out, although obviously it will depend on the system.
 
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