When to Stop Trading After Losses

SimpleMeLike

SimpleMeLike

Hello All,

I day trade the CL and ES futures. I am risking 2% of my account capital per trade.

My problem is I am not sure when to stop trading during the day after X amount trades that lose (i.e., stopped out). Right now I just stop trading after about 3 losses but always feel the needs to get the PnL back to breakeven and keep trading, and this leads to over trading.

Questions please:

1. What money management rules do you have set in your trading plan that you follow to stop trading for the day?

Thank you kindly.
 
You could set a daily loss amount that is no more then your average daily win. You could also use a method that gives a maximum percentage back of your run-up of the day. So if you have a profit of 1000 for example, you stop trading when you give back 25% of that 1000 profit. 750 is your limit then to stop trading

Your urge to get back even, after a loss is called revenge trading. And you can guess what I'm going to tell you now: That is only controlable with the right mind set and awareness when it happens.
 
danielc1 said:
You could set a daily loss amount that is no more then your average daily win. You could also use a method that gives a maximum percentage back of your run-up of the day. So if you have a profit of 1000 for example, you stop trading when you give back 25% of that 1000 profit. 750 is your limit then to stop trading

Your urge to get back even, after a loss is called revenge trading. And you can guess what I'm going to tell you now: That is only controlable with the right mind set and awareness when it happens.
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Thank you danielc1 for the response. I like your comments.

What are your thoughts on stop trading after X% of account is loss?

Thanks,
 
I think it really breaks down into only 2 scenarios. You either have an edge, or are confident in your ability to trade, and hence, at no time should you stop. 3 or 4 losers in a row is nothing, just like 3 or 4 winners in a row. If you stop trading after a string of losers, you are more than likely preventing the eventual wins from being realized.

The second scenario is one where you are not sure about your system yet, or your system isn't all that viable, or your ability to trade isn't at full speed in all market conditions. For this scenario, a max drawdown for the day will help, but overall, it won't matter much after 100 trades if you're actually not trading in a profitable manner. Those days where you start out with 2 wins might make you think you're good but need to stop for the day so as not to lose your wins. But if your day starts out with two losses, then you second guess your ability. Either way, after a string of several wins or losses, it doesn't mean much, but to the unprepared trader, he needs to somehow figure out the meaning of this and apply constraints. The successful trader knows that no such constraints are necessary.

Look at it this way. Suppose you're a contractor. If you're used to having to make about 3 quotes for a job, and only book one, you know that out of every 10 or so quotes, you will only get about 3 jobs. You may have 4 rejections in a row, but does this mean you stop answering the phone and giving out quotes for work?
 
NoahA said:
I think it really breaks down into only 2 scenarios. You either have an edge, or are confident in your ability to trade, and hence, at no time should you stop. 3 or 4 losers in a row is nothing, just like 3 or 4 winners in a row. If you stop trading after a string of losers, you are more than likely preventing the eventual wins from being realized.

The second scenario is one where you are not sure about your system yet, or your system isn't all that viable, or your ability to trade isn't at full speed in all market conditions. For this scenario, a max drawdown for the day will help, but overall, it won't matter much after 100 trades if you're actually not trading in a profitable manner. Those days where you start out with 2 wins might make you think you're good but need to stop for the day so as not to lose your wins. But if your day starts out with two losses, then you second guess your ability. Either way, after a string of several wins or losses, it doesn't mean much, but to the unprepared trader, he needs to somehow figure out the meaning of this and apply constraints. The successful trader knows that no such constraints are necessary.

Look at it this way. Suppose you're a contractor. If you're used to having to make about 3 quotes for a job, and only book one, you know that out of every 10 or so quotes, you will only get about 3 jobs. You may have 4 rejections in a row, but does this mean you stop answering the phone and giving out quotes for work?
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You are spot on. But people are not always and everyday laser focused on their trading system. If you have a rule to just stop after a daily loss amount ensures that the day end without any harm, so you can start fresh again tomorrow.
 
SimpleMeLike said:
What money management rules do you have set in your trading plan that you follow to stop trading for the day?
More...

As other have said, it is is a matter of why there are losses and why are you stopping. If you can drill down into the reason that is a good start.

To wit, I had 3 or 4 bad things that were hurting monthly performance. So I created a set of "meters" that evaluate my trades. When the meters indicate bad things, I stop the current session by actually closing the trading platform and go do ANYTHING else for at least 10-15 minutes. My losses are recorded and I start a new "set" of trades. I don't have any thing to "revenge" for and start with a clean slate. Likewise my meters can kick me out for doing very well and hitting goal. Again, I close things up and walk away. I return later as a "new set", just as cautious, aggressive and calculated. (I am not a pro, just competing with them on ES)

Some days I will do 3-4 sets, like today (actually 7 sets today hit goal). Normally I go one set, but this volatility (VIX > 25) allows for more action, e.g. mid day. It allows me to keep the money issue as a side line, and concentrate on the trades by breaking down the trades into manageable sets.

An analogy is driving. Driving 2-3 hours is easy. 14 straight for only gas is hard, especially in bad weather. So drive 2-3 take a break, then another 2-3. You will get there safely eventually. Likewise you can consistently string together trades excellently executed according to your plan, stop, take a break, and then go again with another string.

Simply put, take a break, go back to basics. No need to be superman non-stop trading, nor a newbie, who thinks they are missing out on a trade opportunity. The market will be here and more opportunities will arise so take advantage of that reality in your plan.

PS: This all assumes that "2% loss risk" is being offset by winners (Size and/or frequency) so there is a positive system. If there is not, or it is unverified over a long period (at least 30 "session"), that is a much larger fish to fry.

PPS: this is from the ET archive: Scalping and Analysing your trades. A true scalpers lineout. I started with this concept and modified it for my usage.

Hope this helps.
 

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danielc1 said:
You could set a daily loss amount that is no more then your average daily win. You could also use a method that gives a maximum percentage back of your run-up of the day. So if you have a profit of 1000 for example, you stop trading when you give back 25% of that 1000 profit. 750 is your limit then to stop trading

Your urge to get back even, after a loss is called revenge trading. And you can guess what I'm going to tell you now: That is only controlable with the right mind set and awareness when it happens.
More...

When it comes to the world of science, psychology isn’t one. It is a subject area that is too subjective; conclusions are mushy, and not falsifiable or repeatable. As a college major, it is not in the top 20 (or 30) highest paying majors but in fact one of the lowest. The same is true for graduate school salaries. Trading psychology recommendations are outright silly: Consider this statement: “The most important attribute for making money in financial markets is self-confidence” but how is confidence, self or otherwise, defined and measured? If self-confidence cannot be defined or measured, it cannot be understood so how can it be the most important? The same can be said for this statement: “Do not trade money until you are fully confident in your strategy”. Since “fully” cannot be measured it is useless. Consider the list of 6 keys to managing trade psychology which include “have an edge” (what is that exactly?); know thyself (who me?) and avoid emotional mistakes (My, oh my). Put psychology to the curb.
 
SimpleMeLike said:
Hello All,

I day trade the CL and ES futures. I am risking 2% of my account capital per trade.

My problem is I am not sure when to stop trading during the day after X amount trades that lose (i.e., stopped out). Right now I just stop trading after about 3 losses but always feel the needs to get the PnL back to breakeven and keep trading, and this leads to over trading.

Questions please:

1. What money management rules do you have set in your trading plan that you follow to stop trading for the day?

Thank you kindly.
More...
To stop trading based on a certain percentage loss or percentage of account size as guidance is arbitrary and capricious and always has been. One way is to track wins vs loses as a function of days of the week; I almost always see failed trades concentrate in 1-2 days of the week (diurnal variation). So sim trade on those bad days.
And other mechanism is compounded failure rates. Imagine a system with 78% success/22% failure. So the chance of any one failed trade is 0.22; two failed trades in a row is 0.22 x 0.22 or 0.048 or 5 out of 100 trades. Three failures is 1.06 out of 100 or 99% chance something is wrong = quit trading.

Thirdly ask each failure to explain itself: stop was just a little too small, set up was just all wrong, sudden reversal based on news, there was trend change, etc. Give your failures a name and label each failed trade according to day of the week and then when you have a failed trade going forward give it a name also to see if it is in the company of historical failures by that name or not. Failure likes company and they will teach you to avoid future failure.
 
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