I don`t want to length this stop thing, this meets to many opinions and is surprisingly a highly emotionloaded stuff... My arguments against thinking in terms of a point stop and "the right stopsize" resumed: thinking in fixed points is not a good idea, simply look at indexlevels, if running up to S&P 2300, you want to use 2 points? Or down to 600, 2 points? This is quite a difference in % of the index. And you don`t consider Volatility either... There is NO optimal stopsize, it depends of the strategy(I´m not talking by all means about automated strats, but strats in general). Cause I´m mostly not looking to scalp, but more look at the bigger picture of the day and looking for one trade/day only I can and must use larger stops but also trading on 5 min Charts, my profitregion is quite different from the 1-2 points ES I often hear...So MY optimal and tested stopsize is mostly much larger than yours looking to trade frequently a few ticks out the market. And if the stopsize is not fitting to the strategy you can lose money too, or reduce your netprofit a lot, believe it or not. It`s up to you to check if you better use 1.5, 2 or 3 points or even larger stops, depends on your individuell strat and timeframe. A too small stop is of course simply very often hit just by marketnoise. A completely different strat needs completely different stops, by trading breakouts you have to use large stops, by trading pullbacks you can use smaller stops, catching tops/bottoms are again different. What me induced to start with this stuff was the strange advice to use some stopsize regardless of the used strategy/timeframe/frequency of trades per day, this is nonsense
I think there are probably good arguments both ways--Sounds like one side is relating to current market action and others are relating to a trade being right immediately or they get out. I would say that argument two takes quite a bit of emotion out and keep the account healthy, while argument one is for someone who is a more likely better capitalized and can stand the strain of a large stop. Option one most likely ends up with a higher number of winners, but also has greater drawdowns which require increasing size of trades. Option two can be wrong more times with the same trade size and still make money. Option two is better for a newbie without question . Not saying that Spike and Romik are newbies at all by the way.
you ending with the same loss by looking for one trade/day with let`s say 6 points ES, or getting stopped 3 times with 2 points, and i had times in 2002 lets say I took ~12 trades and getting hit 10 times, i had large losing days with frequent trading with smaller stops, may be bad entries(probably too..) or ugly choppy market, don`t remember, untill you have no daily loss limit, small stops are no garanty not having a large loss day. Psychological difficult, cause you want trade the money back, you mostly try to get the loss back and losing more by getting hit by chop. If a day is really ugly it often stays ugly. I lost without any problem 2 times the daily range of some day caught in ugly chop trying to get my money back....
It's also to do with what sort of trader you are. Investing is not for me, I hate long time frames. I have developed and trying to better a system which suits my persona. When you say type 1 is for a better capitalized trader, well who knows, depends on trade size. You can position trade 1 contract and on another hand do 3x50 lot trades per day gunning for smaller gains and yes, having tighter stops. That is the difference, the shorter the time frame - the smaller the stop might be. But as I mentioned prior, I do not always apply 2 point stops, a typical example might be something like this - entering a trade at the level A, which is 4 points above daily PP, though 6 below daily R1, well depending on the circumstances, I would change position size and change the stop to 4.25 points, though still risking no more than 2% of my TC. There is no 1 perfect scenario. Whatever works for you and I is the right approach.
the problem is there is a large penalty if u know much at all.........the more you learn, the deeper the hole..........winning has nothing to do with knowledge...........when u take a trade and when i take the same trade might be apples and oranges comparisons..........you might do greatly better than I.........but then, you might not........why is that.........we see the same things, just don't have the same system, or use the same time frame charts, but where the price went on 60 chart it went on 1 minute chart...........i use 4 lines on 1 chart............1 use 5 pt stops that almost never get hit...........YM.........i always know where the "safe stop setting" is ...........you are better with mechanical lsystem ........very few can read the market......i don't care about "read" if my system gives the exteme high probability entry point.........why should I worry about what I don't know......the more i do know is the trap that will put me out of business..........KNOW HOW TO READ YOUR SYSTEM NOT YOUR MARKET........MARKET CAN CHANGE AT ANY MOMENT.......IT CAN GIVE THE SAME SIGNAL TODAY AS YESTERDAY'S WHICH PRODUCED 30 PTS AND TODAY'S SAME SIGNAL STOPPED YOU OUT WITH SAME STOP SETTING....THAT IS WHAT BACKTESTING FOR A LONG TIME IS ALL ABOUT.........CW........ARE U SERIOUS?
MECH ........i believe u r sincere and a nice well intentioned person, but trust me.......high percentage system allows any stop i want ..........loose or tight.....20 pts stops YM absolutely tell me system with that is very weak and tentative........trying to give it "breathing room" says bad signals and weak system ......my gives either bad or weak very seldom..........hence, the 5 pt stops are easy to get by with.......for the average day they don't mean much........either way.......... hardly ever hit ....and when they do 20 would not be much better........ nothing perfect here just doing what market allows............flow with the market.....which is smoother chart 2 or 30?.........5 or 15?...........losses are all caused by fear.........after we find a system that works with an edge.............
B1S2, Thanks for the chart. I can better see the RSI signal. I am not so sure what you mean by reversal point for your exits. For example, if we consider your L ES 1295 trade at 13.18, what would your exit price/signal be? Thank you
It would have been the 13.54 bar where I showed short at 1296.00 . Right now this is work in progress and perhaps profit targets will eventually be the way to do it--or perhaps the system will be no good--but I have in the back of mind, using the next opposite signal (reversal) to be the exit so as to have a big running profit hopefully at least once a day. Profit targets don't allow that , but perhaps enough profit targets make up for missing the big one. Don't know yet.
April 12.2006 results 1 trade 1 winner 1.75 pts profit=$87.50 Commission=$6.27 Net profit= $81.23 Journal to date results 60 trades 27 winners 33 losers 45% Total profit including commission=$2222.86