i don't like traditional initial stops

Discussion in 'Trading' started by Gordon Gekko, Nov 14, 2002.

  1. throughout all of my terrible trading career, most of my trades consisted of a simple initial stop somewhere. when it got hit, i got out. i never liked it. as my frustration continues, i find myself looking to other ways of handling the initial stop. here are some ideas:

    1) say you're trading ES, you get a long entry signal, and your initial stop is 2 points. most people just stop out completely at their stop when it gets hit. my question is: is there any benefit to, say, sell half your position if it goes against you 1 point? (and sell the other half of your position if it goes against you another 1 point)

    2) something like... if my position is not a winner by x points/percentage within/after x seconds/minutes, i'm out. if it is, i'll hold on to it.

    3) any other conditions to get out, other than just waiting til it gets hit.
  2. 2 pts is not enough for any serious strategy except scalping where it is probably too much. Some of my strategies use 6 pt stop-losses. Know what to expect from your strategy. It is the strategy that should tell you when to exit and not anything else. If the strategy does not tell you that, you just don't have the right strategy, IMHO.

  3. Gordon Gekko, earlier this year, when I was trading SPY instead of ES I did exactly what you described in your post. I would enter a position of, say, 600 shares and put in a .30c stop from entry. If the position moved in my favor I would let it ride and move my stop to breakeven after SPY had moved .30c in my favor. If it moved against me .15c, I would exit 300 shares and continue to hold the other 300. If SPY continued against me another 15c and the initial .30c stop was hit, then I would then exit the remaining 300 shares.

    I liked this method. I found that reduced my losses on my stop-outs, but it also allowed for a position to become profitable or b.e. because 300 shares were still being held. Now, since I am trading ES in single lots, I cannot use this technique until I move up to 2 lots.
  4. Hendrix


    My view is that your problem lies in the fact that you use a fixed stop (be it 2 points, 2 ticks or $2 dollars).

    My view on stops is that they are there to tell you when you are wrong. Hence, your stop should be at a point where, if hit, your original reason for entering the trade is no longer valid.

    Choosing an arbitrary stop makes no sense to me at all.

    Why not trade smaller, and place your stops at some point further away (eg, beyong support, beyond a trendline, beyond a moving average or beyond a fraction of ATR (which is still letting the market tell you where to put it) or whatever else tickles your fancy (but still "set" by the market)) so that, if it does get hit, you know your orignal reson for entering was wrong.

    Cuts the frustration level down a lot.....

  5. bobcathy1

    bobcathy1 Guest

    Try scaling out part of the position. If it goes bad, lighten up immediatly and then ride the rest of it for a little longer if you think it might go your way.
    I agree to use smaller positions. Maybe trade some SPY or QQQ until you get a feel for it as you can "gamble" smaller amounts until you get it right.
  6. I wonder what Don Miller would do? Do you know?
  7. bobcathy1

    bobcathy1 Guest

    Actually, that advice is straight off his Emini tape:)
  8. I completely agree with Hendrix.

    Using arbitrary stops or general fixed stops without consideration to the fact that there are different trade setups, different price patterns and different reasons why the Eminis are moving up or down from one day to the next trading day...

    will not only cause more stressful trading but will also increase your odds of not being a profitable-consistent trader.

    With that said...if a trader is successfully using general fixed stops...keep using it because it is obvious that it works well with that trader's particular trade methodology.

    Simply...if it ain't broke...don't fix it.

  9. yes, great example. that's exactly what i'm talking about. :cool:
  10. for the record, my fixed 2 point stop was just for an example. for those that suggested putting the stop under recent support, etc.... let's just say that also happens to be 2 points away. would you exit a portion at 1 point away?

    so my point is..however you determine your initial stop, fixed or not, does it make any sense to scale out as your position turns into a loser?
    #10     Nov 14, 2002