Forums (http://www.elitetrader.com/vb/index.php)
- Strategy (System) Design (http://www.elitetrader.com/vb/forumdisplay.php?forumid=34)
-- stop loss determination (http://www.elitetrader.com/vb/showthread.php?threadid=62907)
stop loss determination
How many at ET set their stop loss according to the charts/market and how many set it according to their account balance? What is your particular preference?
Either is logical. Both are arbitrary.
__________________
Men are like wine. They start out as grapes, but then it takes a woman to stomp the crap out of them until they're decent enough to have dinner with.
For swing trading, I use a combination of the two thanks to position sizing. In other words, I pay attention to both. As I do not want to lose more than 1% of my account per trade. if the stop based on the market implies a big move, I reduce my exposure/size and vice versa.
Do you skip trades then that aren't within budget and if so, is that a difficult decision especially when you feel strongly about the potential?
No, I would just have a small position. I understand it is a conservative approach, but it enables you to preserve your capital. Less risk, less reward. But this is the best way to trade for me, mentally. I hate big losses. I do not like small losses but they do not deplete mt account too much.
Yes I agree , a smaller position keeps you in the game. I think the losses are what need to be managed and the winners take care of themselves (for the most part)
Are there any traders on ET who don't use stops? If so, what is your rationale?
Not using stops may make you money on many trades but eventually will be a disaster.
Stop loss I use is based on the charts.
I know that 1.5% is the max % of my account I am willing to risk on a trade.
If I can get outside the noise with that stop I take the trade.
If I can't I'll wait for a better entry or pass on the trade.
The extremely difficult thing for me is how the exit.
I came in this morning long ER and ended up selling at 722 around 10:00 (3.6 pts below the highest bid)
Exits are tough.
Maybe wait till 9:40 and if ES breaks 9:30 LOD sell or just sell based on a % of 9:30 gap gets filled sell.
Would love to be able to hold a few days what seems like a good entry but I can't stomach this much of a pullback.
Well SPX up 4 pts Dow up 50 and ES making new lows
Well I'm done for today don't want to give back any of my gains.
__________________
monee
When you say "outside the noise" , what exactly does that mean. Let's say if you were looking to short--
putting a stop in an area that price has not trade at.
__________________
monee
ok--so you wait for entry that enables you to do that. Is that area generally at the top of congestion or outside it as well from your experience. Sounds like you fade , is that right?
About noise, you need to investigate about volatility bands and ATR (Average True Range). They give you statistical data to avoid the noise. But it is no holly grail. Just a statistical edge.
Quote from Buy1Sell2:
"... Are there any traders on ET who don't use stops?..."
__________________
Men are like wine. They start out as grapes, but then it takes a woman to stomp the crap out of them until they're decent enough to have dinner with.
Quote from Buy1Sell2:
Are there any traders on ET who don't use stops? If so, what is your rationale?
__________________
If you're not living on the edge, you're taking up too much room.
when you don't use stops, do you have a mental area that you intend to get out or only when your indicators show that the move will continue in the unfavorable direction?
Quote from Buy1Sell2:
when you don't use stops, do you have a mental area that you intend to get out or only when your indicators show that the move will continue in the unfavorable direction?
__________________
If you're not living on the edge, you're taking up too much room.
Are you using a small position so as to not be wiped out or do your indicators generally "stop" you out before you lose say 20% of portfolio.
Skip trades that do not fit in your risk parameter
That would be the correct vehicle 
__________________
Lets discuss ideas/Strategies
Trend/Day/System
Growing Fund in progress
Re: stop loss determination
I always use a stop loss based on chart analysis. It is intended for protection, and it is rarely hit. I use it for position sizing and consider it for reward / risk analysis.
Calculating your stop loss by starting from your account is like trying to force the market to do what you need, and it won't work.
Quote from Buy1Sell2:
How many at ET set their stop loss according to the charts/market and how many set it according to their account balance? What is your particular preference?
Does position sizing mean that you are actually using a combination of the two ie that the position is related to your account size?
Position sizing
The difference between the entry price and the stop loss is my maximum loss per unit.
Function of my risk tolerance and my trading method I decided on a percentage of my account I'm willing to risk on each of my positions, i.e. 2%. If my current account value is $50k, I risk at most $1k per position.
Dividing the maximum loss per unit into the $1k, determines the size of my position.
Quote from Buy1Sell2:
Does position sizing mean that you are actually using a combination of the two ie that the position is related to your account size?
It appears that this is a combination then of both charts and account balance analysis. This may be the proper approach using both. I wonder if there are others that use a combination or just one of the two--Best regards
"fixed fractional risk"
The money management method I use is called "fixed fractional risk".
Quote from Buy1Sell2:
It appears that this is a combination then of both charts and account balance analysis. This may be the proper approach using both. I wonder if there are others that use a combination or just one of the two--Best regards
Hey Buy1Sell2, you asked about stops in the emini thread as well, but I think I see here that you might actually be looking for some clarity on the larger stop placement/money management/position sizing issue, and how they relate to each other.
Quote from Buy1Sell2:
Does position sizing mean that you are actually using a combination of the two ie that the position is related to your account size?
I think this is what you guys were talking about in an easy excel format. Put in account total, risk per trade in percentage, then stick your buy price in there, choose your stop loss based on the charts, input numbers and buy the shares for your maximum risk per trade.
Re: Position sizing
Works really well for habitual losers.
Quote from cnms2:
The difference between the entry price and the stop loss is my maximum loss per unit.
...
__________________
Trend Finding is Edge Finding and Edge Finding is Trend Finding
nononsense's axiom
Re: Re: Position sizing
Quote from nononsense:
Works really well for habitual losers.
__________________
"The Pursuit of Happyness" --- Chris Gardner
Re: Re: Re: Position sizing
Quote from OddTrader:
You must mean Kelly!?
__________________
Trend Finding is Edge Finding and Edge Finding is Trend Finding
nononsense's axiom
Quote from Buy1Sell2:
Are you using a small position so as to not be wiped out or do your indicators generally "stop" you out before you lose say 20% of portfolio.
__________________
If you're not living on the edge, you're taking up too much room.
Art, thanks for your post I certainly think that the points are extremely valid. By having a position too large to make sense chartwise etc., a trader would be putting themselves in an almost no win situation. I am reasonably sure that this is the most important aspect of trading as opposed to outright directional analysis. This would seem to let you be wrong and still wind up a winner over all. All new traders should probably have this tattoed on the back of their wrists so they can see it when hitting the buy button on the online account. What say you?
Science, do you mean 20 to 30 % of portfolio? Has that stop ever been hit?
Quote from Buy1Sell2:
Science, do you mean 20 to 30 % of portfolio? Has that stop ever been hit?
__________________
If you're not living on the edge, you're taking up too much room.
So you basically use a catastrophic stop. just to stay in the game if all else fails ?
Are there any other traders here who employ the type of strategy that science uses and if so, have you been successful? By the way, science do you experience quite a few trades that you feel would have been stopped out under other systems only to turn around and be profitable ?
Quote from Buy1Sell2:
It appears that this is a combination then of both charts and account balance analysis. This may be the proper approach using both.
I wonder if there are others that use a combination or just one of the two--Best regards
__________________
murray t turtle,nickname,not an alias
Murray , that seems to suggest a trader may want to pass on the trades that don't fit both the charts and the total drawdown. Probably good advice I would say. Now that being said, a trader could look at a daily chart and determine that almost any market might not be in budget, but then look at intraday charts and see that there would be opportunity. What would be your opinion with regard to that, recognizing the conventional wisdom is for a trader to first be a good position trader before looking at day trades? Would the answer be more funding or is there any merit to the "postion trading first" idea.
Yes, it is possible to be wrong more often and still make money..your system just has to allow for your winners to run far and cut your winners short. Getting that to work with enough of an advantage, so you can be significantly wrong more than you can be right, is probably as hard as figuring out how to be right more often
Quote from Buy1Sell2:
Art, thanks for your post I certainly think that the points are extremely valid. By having a position too large to make sense chartwise etc., a trader would be putting themselves in an almost no win situation. I am reasonably sure that this is the most important aspect of trading as opposed to outright directional analysis. This would seem to let you be wrong and still wind up a winner over all. All new traders should probably have this tattoed on the back of their wrists so they can see it when hitting the buy button on the online account. What say you?
But it makes me think of that quote I always see from George Soros:
I've done lots of tests on stops. On the tests for stops with a loss I found little difference in overall profits based on where a stop was placed. With tighter stops the percent of winners dropped but the winners made way more money than the losers. With looser stops the percent of winners went up but the total win/loss ratio decreased so the overall profits were the same. I've found it much more profitable to spend my time on the stops for profit and I think it's a big difference between ok and better traders.
One area of research you might want to check is entry size. If you don't do all in at once it can have a big difference in your trading.
I found if I go in partially initially, and then after a fixed period adding more if the position is profitable, the overall profits went up, the time between equity highs went down, the drawdown increased, and the sharpe ratio went down. If I did partial entry at first and then adding if the stop hasn't been hit, but the position is underwater then adding to the position gave lower overall profits, higher time between equity highs, lower drawdowns, and increased sharpe ratio.
Just something to consider
43yotrader
40yotrader's loss/exit stops and pyramiding
40yotrader,
Thanks for sharing. What assets have you backtested?
Quote from 40yotrader:
I've done lots of tests on stops. On the tests for stops with a loss I found little difference in overall profits based on where a stop was placed. With tighter stops the percent of winners dropped but the winners made way more money than the losers. With looser stops the percent of winners went up but the total win/loss ratio decreased so the overall profits were the same. I've found it much more profitable to spend my time on the stops for profit and I think it's a big difference between ok and better traders.
One area of research you might want to check is entry size. If you don't do all in at once it can have a big difference in your trading.
I found if I go in partially initially, and then after a fixed period adding more if the position is profitable, the overall profits went up, the time between equity highs went down, the drawdown increased, and the sharpe ratio went down. If I did partial entry at first and then adding if the stop hasn't been hit, but the position is underwater then adding to the position gave lower overall profits, higher time between equity highs, lower drawdowns, and increased sharpe ratio.
Just something to consider
43yotrader
I love it when people quote old Georgie Soros. I mean, this guy was making 4K a minute, nevermind the odd billion he made here and there shorting the pound.
Yeh, Soros is one of the greats....but,
He was on the top of this game.
Stops take on a different concept when your wife wants to know where the holiday money has gone and you are struggling for a six pack.
Next time you are out for a walk with the dog, think about the pot you've got to p**s in?
Now....., tell me about Georgies stops?
Put the R/R money management criteria into your stock scan as well. For example, GOOG and NOC recently had about the same rise/risk ratio when trending. Look at the charts from far away and you'll see what I mean.
Quote from 40yotrader:
One area of research you might want to check is entry size. If you don't do all in at once it can have a big difference in your trading.
I found if I go in partially initially, and then after a fixed period adding more if the position is profitable, the overall profits went up, the time between equity highs went down, the drawdown increased, and the sharpe ratio went down. If I did partial entry at first and then adding if the stop hasn't been hit, but the position is underwater then adding to the position gave lower overall profits, higher time between equity highs, lower drawdowns, and increased sharpe ratio.
Has anyone here at ET found themselves cancelling a stop when a market is moving towards it or moving the stop away from the market? If so, did these trades become profitable in general or was this the beginning of the big mistake trade--
Does anyone here use only a catastrophic stop and has that stop been hit before?
Quote from Buy1Sell2:
Does anyone here use only a catastrophic stop and has that stop been hit before?
The trading plan must as we all know include money management to keep the loosing streak manageable.
There is one problem though, the mind can play tricks on us, both emotionally and on the ego level. One thing is for sure, letting the mind take control of the so important aspect of manage the trading rules, we are in for a disaster. The rules have to be predefined and set up in advanced so when it comes to the trading session we are prepared and at ease and can pay full attention to do what we are good at, trade!
Leave the management of position sizing, stop levels, exit points to the money management software, nothing we should concentrate on while trading. Most brokers have instrument based money management but not when it comes to the trading account itself.
I recommend, watch the video below, it explain how to protect our trading accounts, how to keep the profit and minimize the loss.
Click here to watch the video
All times are GMT. The time now is 11:38 PM.