I agree but why does that exit have to be at a fixed price with a standing order? Why can't it be a manual, pre-determined exit "area" that is based on the behavior of the market once that exit point is reached? The failure to exit at that area is a break down in discipline, not a break down in methodology. And just so I'm perfectly clear, I don't use such a wide stop on all trades. It's a very specific trade. There is another specific trade where I use a stop as tight as 6 ticks, depending on the level of volatility. Back in 2008/09 the tightest stop I ever used was about 4 points. Anything closer would have guaranteed a good ass chewing. The volatility was so high it was suicide to keep them closer.
Trading with a Stop Loss in the Futures Market is for Losers
- Thread starter emg
- Start date
For me, part of why I think of it as a standing order, whether placed beforehand or not, is because I view my trades like a scientist views an experiment. 1 tick beyond where I put my stop and the my "experiment" has entered "no-man's land" as far as I'm concerned and I'm out, just like a scientist who starts to see results he did not expect will pull the plug on an experiment and rethink things. Another trade will come along soon enough (again, "soon enough" for me. I will probably end the year with ~400 completed trades, which some of you will do in a week), no sense watching 1 tick beyond my stop turn into 5 ticks or even watching 1 tick beyond my stop turn into 5 ticks in my favor, which breeds a sense of false confidence that things will always turn out so well.
Also, for context, my *initial* stop, which is set by the logic of the market's price action, gets hit about 10% of the time. The other 90% of the time, I'm stopped out after moving the stop to a point where my loss is smaller or I'm letting the market take me out of a profitable trade as a favorable excursion gets retraced.
Again, I was just reacting to the OP's very dogmatic stance. I'm all for black and white distinctions (heck, I make them all the time), but I think they need to be based on valid, data-driven, reasoning.
I don't mean this in a disrespectful way LM, but that's precisely the type of trader I take the opposite side of. This may not describe you, but the most logical place that traders place stops is below/above a previous reaction low/high. Once the market penetrates these levels, even by as little as one tick, it's frequently followed by a surge in volume followed by a reversal. Folks that place their stops that close are weak traders and they are easy prey. To avoid becoming that trader I need wiggle room, whether it be 5 points, 10 point, 20, whatever. Pschologically, I need to be out of the way and control my own destiny by getting out of an unsuccessful trade manually. Fast forward to a point where the market isn't that volatile and I'm doing something entirely different. Then I will join you on your experiment and if the stop is going to be hit it's much more likely the market will keep going in that direction so I want an exact exit. There's a lot I left out of what I mentioned earlier with the biggest being a measure of volatility. That number, or the trend of that number, dictates how I trade -- especially concerning stops.
Ah, but notice I said "my stop" not "a previous reaction low/high".
Trust me, the two are never the same. There isn't a trader alive who could game my initial stop. It would be like trying to guess a 128-bit encrypted password with a cereal box decoder ring. Now, the stops where I'm locking in profit? Yeah, sure, I see that happen. But, I know when it happens what the rules for a likely successful re-entry are, so I end up right back in the market when it resumes its move.
I mean this as a complement: you are about two steps away from a stat arb model and my sense is that you don't recognize the fact. You are fading these micro standard deviations and you really do understand the micro-architecture of the markets. Stops are a recognition of a trading range. Take what I expressed about OCO orders involving several different stock indices, compress the trading range, automate the market-making, amp up the ECN and execution capabilities, and you are there.
Not a criticism, a back-handed complement and possibly something to think about over the weekend.
You have possibilities.
Been coding trading algos for about 10 years. My programming knowledge goes back to the mid-80's writing code in BASIC when each command had a line number and printouts occurred on a dot matrix. My term project in my first class was to write a poker program. Best I can recall it was about 500 lines. Nowadays it would be about two screenshots in C++.
Traded prop after graduating with a Master's in Computational Finance from a University you know too well. Started a hedge fund not long after that, got sick of the grind of doing that and converted to a CTA from a CPO. Looks like we got more in common than we realize but I still think you're paying too much for that damn platform. To each his own I suppose
Traded prop after graduating with a Master's in Computational Finance from a University you know too well. Started a hedge fund not long after that, got sick of the grind of doing that and converted to a CTA from a CPO. Looks like we got more in common than we realize but I still think you're paying too much for that damn platform. To each his own I suppose