Trading with a Stop Loss in the Futures Market is for Losers
- Thread starter emg
- Start date
Hi Visaria
That would take much more time and energy than I have at hand. Also, it would probably call for a flame war, as people with no enough brain or not enough experience would not even be able to make sense of it.
What I can suggest, in general, is practice and practice, but, not in an obtuse, "gambling" fashion (like open/tp/tl), but trying hard to get out of common places and common idiocy of misleading suggestions (mostly originating by brokers), which unfortunately flood the web.
Nobody will be able to tell something to someone, if he is not "ready" to accept it. And getting ready for deeper understanding of trading mechanisms is based both on actual trading experience and a lot of thinking, in a (neverending) personal journey and intellectual insight on hedging methods.
(Also, as emg pointed out jokingly, capital, diversification, sizing, among many other, are also key factors. Under a certain capital threshold, there is simply no way to trade meaningfully).
That said, anyone is absolutely free to trade as he likes (and can). After all for some people it is just entertainment... and it's fine to pay for entertainment... ;-)
This tired rhetoric thread does not assume said futures traders in question are trading "a portfolio". That's something stock traders do... irrelevant to this thread entirely.
Now when it comes to "hedged" specifically, if you are 100% hedged from all risk then you are 100% flat any directional position. The only difference is two trade costs paid versus one round turn.
Hedged = flat. Flat = stopped. Anything other than that is fallacy. Futures traders who don't use stops are 100% certain to lose in time. It is only a matter of time before such traders are caught in a runaway directional trend, and dead.
There are no exceptions to that universal law of trading. You either accept controlled losses spread amongst wins... or one big loss to wipe out all prior wins. There is no third choice
That's a vague and long winded way of dodging the question..
You cant explain the difference. Because there isn't one. And that's ok, I dont mind.
I'm not here to flame - (despite your rather arrogant intimations about brains and experience) - whether your hedging is actually more intelligent or merely a psychological crutch paid for with a cost increase.
Main thing is, it works for you. Good for you.
Best of luck.
No but it assumes you either
1) You never make a mistake.
or
2) Don't believe you will be caught by a black swan.
I use stops because sometimes I plain and simple made a mistake with the trade setup and the stop prevents me from doing further damage to myself.
I also use stops to prevent me from taking loss if something unexpected happens like a plane flies into a building.
For those that don't like to use stops because they keep getting stopped out on winning trades, then the problem is not the use of stops, but where you choose to enter into a trade.
Sometimes you need to be patient enough to wait for price to reach a point where you can take a trade without risking more than your reward. Also, if one is stopped out then the trade goes in your direction, you can then hop back onto the trade.
Or if the price keeps going past your stop then you might have a trade setup in the opposite direction. However, again you need to wait for the trade setup. For example, just because you think the opposite direction is now, correct, you still need to wait for a trade setup to occur where you can take reasonable risk vs your reward because you don't want to get chopped up. Also, if you start getting chopped where price is going sideways then the best solution is not to trade the chop since you are then making it worse.
Some traders will just let price keep going against them and then try to martingale to get back to BE or 1 point in the green. And while martingale may work many times, it just takes 1 time for you to get too stuck to get out. On tracking sites you can see some traders with a very high win% using martingale, but you can then tell that they have been doing it due to the high draw down that occurs on a trade every so often. The nice equity graph and many months of profits sucks newbie subscribers into this ticking time bomb that wipes out everyone's account when it finally goes off. Also, the subscribers that fall for this don't have the many months of profits to fall back on when the margin call hits. This also occurs when selling options and not understanding the correct margin you should use if the trade goes against you to prevent a massive loss.
1) You never make a mistake.
or
2) Don't believe you will be caught by a black swan.
I use stops because sometimes I plain and simple made a mistake with the trade setup and the stop prevents me from doing further damage to myself.
I also use stops to prevent me from taking loss if something unexpected happens like a plane flies into a building.
For those that don't like to use stops because they keep getting stopped out on winning trades, then the problem is not the use of stops, but where you choose to enter into a trade.
Sometimes you need to be patient enough to wait for price to reach a point where you can take a trade without risking more than your reward. Also, if one is stopped out then the trade goes in your direction, you can then hop back onto the trade.
Or if the price keeps going past your stop then you might have a trade setup in the opposite direction. However, again you need to wait for the trade setup. For example, just because you think the opposite direction is now, correct, you still need to wait for a trade setup to occur where you can take reasonable risk vs your reward because you don't want to get chopped up. Also, if you start getting chopped where price is going sideways then the best solution is not to trade the chop since you are then making it worse.
Some traders will just let price keep going against them and then try to martingale to get back to BE or 1 point in the green. And while martingale may work many times, it just takes 1 time for you to get too stuck to get out. On tracking sites you can see some traders with a very high win% using martingale, but you can then tell that they have been doing it due to the high draw down that occurs on a trade every so often. The nice equity graph and many months of profits sucks newbie subscribers into this ticking time bomb that wipes out everyone's account when it finally goes off. Also, the subscribers that fall for this don't have the many months of profits to fall back on when the margin call hits. This also occurs when selling options and not understanding the correct margin you should use if the trade goes against you to prevent a massive loss.
Hi Oraclewizard,
although you said a lot of right things I believe it depends on the timeframe and contract. I am trading mainly FDax and I can honestly say, that I have been starting to become profitable when I stopped using stops. My protection against a fatal loss is small contract size.
Setting a stop also is used as excuse of many traders not to follow your trade and either wait until your profit target is hit or your stop is hit. But then you will throw away the chance to react for certain market movements (whatever this is what the market wants to tell you) during your trade. I enter a trade and my trading plan is constantly influenced by what happens during my trade. How can I make a final trading plan in advance ? So many things can happen during my trade that might tell me to exit the trade immediatly, or maybe to double the size even if I am at a loss with my first position.
I think you need the mental strenght to manage a trade without a stop or fixed profit target to get the most out of this market.
That said, I admit, that I have some drawdowns from time to time which are sometimes eating 1 months of profit (worst case was 2 months) and my equitity curve is not exactly smooth. This happens when my brain gets back in the old loosing mode from 20 years ago.
But finaly what counts is the total performance and this works OK for me so I accept these mental imperfections as part of my personality and continue trading. Nobody is perfect.
Greets from Germany