Loosening up your stops?

Discussion in 'Index Futures' started by bmills313, Sep 22, 2008.

  1. I've just been practicing with paper money here while I formulate gameplans and such for trading the YM. I've been trying to stick to a 20-point stop in all my trades and more often than not I'm getting stopped out. While I understand the setup is the most important thing I'm just finding it odd that on somewhat high(er) probability setups I'm getting stopped out.

    What I find interesting is that had I widened that stop to say 30-points the play I was making starts forming up and I hit my targets. Today I made 5 trades and I hit my target on 2 of them and was stopped out on the other 3. However, had I been using a 30-point stop I would have hit my target on 2 of the 3 failed trades.

    I guess my question is... in this rather volatile market are you loosening up your stops to help compensate for the volatility? Or, is this just a fools rationale and will ultimately lead to further losses with no notable gains?

    I'm a newer trader to futures and I'd love to hear if you think that widening up those stops to allow for a little more room to move is what you're doing or if you're sticking to your "regular" stops and seeing success.

    BTW, I'm only trading 1 YM contract with (typically) a 20-point stop in place.

  2. ScalpMan


    A stop is a stop, don't move it. If need be, set a larger stop in the first place. Make sure your targets are at least 2 times your stop.

    Moving a hard stop is the first step towards big loss.

    "A big loss was always first a small loss"

  3. Thanks, Victor.

    Yeah that's more of what I was getting at: setting the stop larger in the first place, not adjusting the stop during the trade.

    I think I'll give it a try here over the next few days of certain crazy volatility and see how that works.

    Thanks, again!
  4. Big AAPL

    Big AAPL

    As a newer SIF trader, you are embarking on a long journey. Throughout your studies, you will undoubtedly read through thousands of pages related to the subject within these forums. Like trading itself, you will notice patterns forming as the same bits of advice start appearing more frequently on the threads you read. The good advice becomes easy to spot as you start to figure out who is speaking from experience and who is talking out the side of their necks.

    I'll save you a bit of time:

    "if you cannot adapt to changing market conditions, you are destined to fail"

    Many have said it, and it is possibly one of the best pieces of advice (not the only one however) that I have read. This past week should have proven to most traders that strategic stops placed 2 or 3 weeks ago failed abysmally during the recent volatility spike.

    Your observations were correct. Good trading to you!
  5. Schaefer


    Okay, I haven't contributed lately, and it's time for a good deed.

    The key here is not about winning, or losing the trade, but how much profit versus risk you take. If you're risking 30 points for the sake of not getting stopped out, what is your profit target? Is it achievable? Is it realistic?

    If you managed to take in 90, 120, 150 points etc. from that 30 points risk, then you have a pretty good chance of making it. But anything less, and you'd better have an extremely high winning percentage.

    Instead, learn to differentiate the difference between getting stopped out, and failure of the trade setup. If your stop is too tight, you may be stopped out. But that doesn't neccessarily mean your trade setup criteria has failed, and you have to sit out the trade. The trade may still be valid, why not re-enter at a more favorable level? I know, it's easier to be said than done. But with enough practice it can be done.

    And with time, and practice you'll learn to discard the fixed number stops, in favor of more dynamic, and logical stops subconciously.

    Have fun :)


  6. Yeah, that makes good sense. I know playing Monday morning quarterback is really easy and I tend to do that with trades; looking back and thinking "what if..." But as I looked at today's trades and last week's (which isn't typical, but lots of volatility nonetheless) I just started noticing that my entries were good and I wouldn't have played them any different but the stops were choking me. I'd used 20-point stops and was stopped out rather quickly and started looking at the movement between the stop and my profit target. I'd stop out at 20, but the price might have only dropped an additional 5-7 points before it would "do what I was planning" with the trade. That's what got me to thinking about my stops. I'd set a 30-point target with a 20-point stop and it would go down say 26 but also go up to like 38 or 40-points or more...well past my profit target.

    The risk/reward thing is still a tough one for me. By setting 20-point stops I'm happy with getting 30-points and I think even if I upped the stop to 30 I'd be OK with a 30-point profit. But, it seems that I'm alone here as most everyone has been echoing the thoughts of wider stops needs to translate to larger profits. My setups are pretty simple but they seem to be effective...if I'm widening those stops to a 1:1 ratio. Granted, several of those trades had the potential to be in the 60-point range but my signal to exit would have fired before getting those those larger gains

    I'm trying to focus more on better setups and entries but at the same time I can't help but think that if this were 6-months ago or during a more "normal" market my setups, stops, entries and exits would be performing better... Just my observation.
  7. You should try to avoid stops based on raw $ stops, i.e. 'quantity of $$' above short position or below long position entry price.

    One popular paramter is ATR - average true range, in case anyone may not know, is the difference between (max of this bar and previous bar close) and (min of this bar and previous bar close). In intraday trading you may consider intraday ATR or daily ATR. On any chart software put up the ATR and you will see how it varies as the markets move up and down or sideways, whether intra or daily timeframe.

    You may consider a stop like this:

    long position stop price = entry price - ATR(x bars) multiply by factor,

    short position stop price = entry price + ATR(x bars) multiply by factor

    You can vary x and factor in backtesting

    You can also look at entry price + daily ATR(of x days) so you allow the position to move as far as ATR away from entry price. Of course, in wild big-range days or even intraday bars this would be quite a WIDE stop.

    You can also use ATR in profit target exits, e.g. profit target price for long position = entry price + ATR(x bars) multiply by factor, etc

    Another method you may utilize is to exit if market breaks below x-bar low or above x-bar high, you can vary x in backtesting.

    You may also try a Trail stop, trailing the high or low of the position.

    These are more dynamic methods which allow you to be more in sync with the market's movements rather than setting a fixed dollar stop or profit target which has absolutely nothing with the magnitude of market moves.

    For example, if you are intra trading and set a stop for e-mini S&P at $150 and the ATR for 5-min or 10-min bars is 3 points then you are most likely to be stopped out at the slightest move above normal market action. The '$150' value is hardly related in any way to the market.
  8. davidjrjr


    I am just a dummy but i try to give you a hand. Sounds like you set up is giving you 10 to 20 ticks of heat? Why not wait for a ten tic retrace and then enter keeping your 20 tic stop in play?

    Just an idea. :)
  9. Add me to the list as another dumbass, but I think others got it all wrong. Stops shouldn't be placed arbitrarily, like 20 points from your entry or some vague number derived from ATR. It should be determined by technically important places like support/resistance and/or trendlines. Why are they so important? Because when the support/resistance and/or trendlines are violated, it ususally means the current trend has effectively reversed, which coincidentally means that you're screwed. :D

  10. I assume support/resistance and trendlines would be derived from an algorithm(s) so that you can backtest trading systems with entries and exits based on support/resistance.
    #10     Sep 22, 2008