Why some people cry about their stops :)

[harrytrader]

I explained above that these numbers are just measures. What you will do with them will depend on your own system. But as for stops what I want to explain is that one of the frequent reason s novices lose is that their stop is too tight compared to the CAPABILITY of THEIR system (so I don't mean for ALL systems for example the possible best system of the world of Mr Profit ). Usually it can be that they don't have enough capital so they put a stop that is too tight compared to what their system would require.

I have already introduced the capability concept of a system but I have only done it once so I will do it again. As often the concept I cite comes from Quality Engineering field. One of the greatest advance in industry was to make a move concept from specification to tolerance by understanding that it is not enough to have specifications but that specifications must suit realities. If in real your system has an intrinsic capability of x0 you can't get x < x0 this is just wishfull thinking like praying god ! So the term too tight means that it is relative. I give the capability of the market not of anybody's trading system since I don't know it. But the anybody's trading system capability will most likely depend on market's system capability itself.

Quote from dojibear:

Profitseer,
If one uses HarryT's standard deviation as a strategy for trading, he will get in a trade with both Stp loss and Stp profit having a 'huge probability' of getting filled. Therefore, the ratio of $Loss/$Profit would be 1:1, and in the long run, it's a loosing plan if you include commissions.
I will not blindly include HarryT's statistic numbers into my trading, but willl complement it into explanations of my stopping out, e.g. I see that I got stp out only to see that the price moves back into my direction, and the 'shaking' seems to follow HarryT's standard deviation, I will simply modify my ENTRY point, that's all.

As for scalping the spread, one could do it with stocks, you just have to shave 0.0001$ above the best bid, or under the best ask and you'll be the first one in line (in my day, it was 1/256 or even 1/512 $ ). But with the futures, IMHO, it's impossible to scalp the spread and be consistenly profitable.

I don't understand why you seems to get emotional (upset? ) about all this ?


Cheers!!

 

[Gordon Gekko]

POP is cool.

 

[Wappers2]

Quote from harrytrader:


This is an estimation of Dow Jones "intrinsic" standard deviations for each scale intervention

Harry dude!

Outstanding work!

like the other geezer siad, knock it up for the s&p puh-lease!

 

[jack hershey]

Quote from Lobster:

There are many factors which contribute to how much the index wiggles in different time frames: Market makers and scalpers need to gross the most because they have the highest expenses. Therefore one will always be able to achieve the highest gross profits by trading the shortest time frame (assuming one is equally apt to trade all time frames). On the weekly or monthly time frame, things like decimalization or especially a change in transaction fees should have almost no impact on the observed variable.

Does anyone know why this mistaken conclusion was drawn??

 

[MondoTrader]

"Therefore one will always be able to achieve the highest gross profits by trading the shortest time frame"

there is no logic behind that at all. Tell that to Warren Buffett or George Soros or any number of other famous types. Then try to find a scalper that qualifies to be on the same list as those guys, there aren't any.

 

[MondoTrader]

your stop loss point should have more to do with how much you are willing to lose on the trade than anything else. You don't need fancy calculations for that.

 

[AAAintheBeltway]

harrytrader,

You are making a very important point. Too many traders feel they can control risk by setting tight stops. You can control the risk on any one trade with a stop, but the overall risk is determined by the market and your entry and exit methods. Set too tight a stop and you are just ensuring that it will get hit repeatedly.

 

[jack hershey]

Quote from AAAintheBeltway:

harrytrader,

You are making a very important point. Too many traders feel they can control risk by setting tight stops. You can control the risk on any one trade with a stop, but the overall risk is determined by the market and your entry and exit methods. Set too tight a stop and you are just ensuring that it will get hit repeatedly.

Stops and trading cycles are separate from each other. Stops are to protect you and trading is to make money. They are at two different places on a chart if you are using TA charting methods.

 

[harrytrader]

Really I want to lose 0 : see the problem

Quote from MondoTrader:

your stop loss point should have more to do with how much you are willing to lose on the trade than anything else. You don't need fancy calculations for that.

 

[harrytrader]

What do you mean by TA because for some people TA just include Chartism for which some "modern" traders feel contempt for because they think they use "scientific" statistical methods . For me TA include all methods that use only market datas and not fundamental datas so volatility and standard deviation belong to TA also.

I repeat that the numbers published don't make any supposition on how you will or not use it. It is a parameter saying: this is a PROBABILITY CONSTRAINT of the market, if you don't take it into account and want to impose your will to the market you should be upset.

As for me, I said in a non-correlated post that I used most these kind of numbers (not directly it is a calculation that use these numbers) not for stop but for evaluating the probability of doing a projection calculated by my model ( For example today there was a wave5 target on my pseudo elliott chart at 7716. Wave 3 is not questionable since it is the minimum target but Wave5 are never sure so I have the probability table that will show me if it is feasible or not and it shows that 7710 is still in the normal probability zone so Wave 5 is feasible see the picture).

<IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=213450>

So myself I don't use the numbers for stops but it can be useful to use them in another framework or if your stops kill you and you want to reevaluate them with some references numbers. But you should use a formula and not use them per se: a standard deviation represents 50% probability if it is normal law. It is not the case and you are not perhaps interested in 50% but more. 50% is reasonable if you monitor your position in real time, it is not the case for every system. In summary your system is not unique and so you can't talk for every people. I give an information the way you use it or not and above all how you will use it depends on you alone.

Quote from jack hershey:



Stops and trading cycles are separate from each other. Stops are to protect you and trading is to make money. They are at two different places on a chart if you are using TA charting methods.