Trading with a Stop Loss in the Futures Market is for Losers

[logic_man]

Quote from the1:

I think you misunderstood me LM. My point is....should you choose there is "another way." There's plenty of ways to make money in the markets and even more ways to lose it. As I mentioned before there are certain trades where I will place a stop as close as 6 ticks, there are others that are managed with the trade out button - i.e. a manual loss, and then there are others that are managed with other instruments. If using a stop-only method works for you then there is no reason to change but for the majority of the folks trading, I have to agree with emg. Stops create losses. There are other options and if you studying how hedge funds trade they rarely use stops. Risk management is art just as any other aspect of trading is.

The rationale I had for joining this thread was that the title was completely dogmatic and I was pointing that out. I'm not denying there are ways to trade without stops, just saying that I haven't found one and, given the performance of my strategy, I'm just not looking to mess with a good thing. Plus, while I'm not giving away the algorithm I use, my initial stop-setting is a science, not an art, based on logic.

To say that "stops create losses", you'd have to look at what happened subsequent to the stop being hit for all the traders that use stops and fail. I'm sure a percentage of them fall into the "stops create losses" category and a percentage fall into the "bad entries create losses" category and some with a little of both. That's why I think the entire thread is myopic and reductionist, since the title could just as easily be "Trading with bad entries in the futures market is for losers".

 

[the1]

I reckon that after 20 years of trading, which including trading prop, starting a hedge fund that was profitable in every year except one, and currently running a CTA LLC, I know how to manage risk and one of the ways I manage risk is knowing how to price options based on the volatility in that market.

Quote from TsunTzu:

I reckon after 15 years in the futures business, 10+ years of trading my own book, running a prop office and managing a team of 30+ traders, I know how to manage risk---and I didn't learn it from some book on options (yawn)

 

[the1]

And to that I would give you a high five. There are many ways to trade and many ways to manage risk. It sounds as though you have found your niche. Kudos LM!

Quote from logic_man:

The rationale I had for joining this thread was that the title was completely dogmatic and I was pointing that out. I'm not denying there are ways to trade without stops, just saying that I haven't found one and, given the performance of my strategy, I'm just not looking to mess with a good thing. Plus, while I'm not giving away the algorithm I use, my initial stop-setting is a science, not an art, based on logic.

To say that "stops create losses", you'd have to look at what happened subsequent to the stop being hit for all the traders that use stops and fail. I'm sure a percentage of them fall into the "stops create losses" category and a percentage fall into the "bad entries create losses" category and some with a little of both. That's why I think the entire thread is myopic and reductionist, since the title could just as easily be "Trading with bad entries in the futures market is for losers".

 

[TsunTzu]

Congrats, go back to your day job and stop handing out one size fits all advice then.

Quote from the1:

I reckon that after 20 years of trading, which including trading prop, starting a hedge fund that was profitable in every year except one, and currently running a CTA LLC, I know how to manage risk and one of the ways I manage risk is knowing how to price options based on the volatility in that market.

 

[the1]

One size fits all? Just trying to get people to think outside the box is all.

Quote from TsunTzu:

Congrats, go back to your day job and stop handing out one size fits all advice then.

 

[nakachalet]

Quote from emg:

Those (SMALL TRADERS) that trade with stop in the futures/commodity market are doomed to fail. I am 99.99% sure, u will lose indefinitely.

Think about it small traders, what is the main reason for the loss or blowing your account? Your stop orders.

Of course, small traders need to place stop due to small RISK capital in the account ($5K. $20K, $50K). Small Traders are taught by 3rd party educational and system vendors to place stop to manage risk and yet they represent more than 90% of small trader lose!! They just lose!!

Force trading, overleverage (trading with more cars) with less capital in the account would make sense to place stop and are doomed. 99.99% u will get stopped out.

Adding to average down is risky if one knows how to do it. Most SMALL TRADERS add to average down/up by every tick or point are doomed to fail and will blow their tiny account ($5K, $10K, $20K, 50K) in no time. THEY WILL FAIL!


Solution:

with $100K minimum in the account and begin to trade 1 car and average down/up 15-50pts against u will minimize risk. For example:


short 1325.00 emini sp 500 on 1 car.

es went against you 20pts. your drawdown is $1000 on $100K account. Is that a lot of heat? U are down only 1% of your account. Is that a lot of heat?

U will go ahead and add and your average price will be 3pts away from the market price. From there u take small profit or loss.

$100K account is equal to $5000 minimum standard to open a futures account and begin trading with 1 car


those that do not have that kind of money should either join the house or should not be trading futures market at all

According to the CFTC:

Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets.

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition.


Remember SMALL TRADERS:

More than 90% of small traders lose. They just lose!!!!


I am looking for the best answers Bring them up!

you don't write like.... nor do you sound like....

you are trading real live lots....

anyone who trades for a living will be very cautious every step of the way.... whether they are piling up and laughing to the bank.... or the other way around....

they won't be talking trashy nor would any of them give such flaw counsel to others, newbies or not....

get a grip.... and tell us what you most frequently trade in... without stop.... wish you best of luck trading live and without stop....

 

[Visaria]

Quote from the1:

There are other options and if you studying how hedge funds trade they rarely use stops. [/B]

But most hedge funds either lose money/go bust/blow up!

 

[al trader]

Quote from TsunTzu:

You don't need to know what a correlation study is to be able to trade and make money. It goes up you buy it, it goes down you sell it. You get out when the market tells you that your wrong. Simple as.

In my experience any traders leaving positions on without stops are told to leave the office and not return.

who are told to leave the office and not return?

 

[cornix]

Quote from the1:

This does not mean I'm "running stops." It means I'm hunting the area where I know stops are placed and then taking the other side when the market reverses. Don't write articles (as a reporter would) and take things out of context to satisfy your bias. If you could understand everything that's contained on this site then you would understand why, under highly specific situations, I trade with a very wide stop.

http://www.statsoft.com/textbook/time-series-analysis/#trend

Athlon's trade example was just that (those trades are my favourite too).

You exploit the trapped breakout takers, who accelerate the momentum of reversal.

So, yes, I agree that knowing and acting where big stops likely are is a good idea.

 

[cornix]

Quote from the1:

The funniest part about this thread is pretty much everyone, with the exception of Bone, believes the only way to manage risk is with stops when, in fact, that's the absolute worst way to manage risk because of the randomness of the market. To say any more would only invite stupidity because authors and brokers have folks brain washed that every trade that ever gets taken MUST have a stop. I'd be willing to bet that 95% of the ET crowd doesn't even know what a correlation study is and how to use one.

That would be true if the market was random.

As for correlations, I already wrote in this thread, that have witnessed myself how very bright quants playing fixed income correlation models, with a lot of institutional experience under the belt got injured very hard in the unusual market conditions of 2008... At the same time, guys with "inferior" risk management aka stops made a certain killing using the huge volatility provided by those markets.