not exiting losers on stops

one of the things i really do believe is possible (and could make you more money) is to exit bad trades when they don't go how they should, instead of getting out at some far away disaster stop.

i think this is a perfect example of a mental issue many traders have. after you enter the trade, most traders want it to be a profitable one. because they want to make money on it, they want to give the losing trade time, hoping it comes back to make money on it. the problem is, as you let it go against you, it may never go your way and eventually you get out at some far away stop, usually at a big loss.

ON THE OTHER HAND, just about every time i backtest something in wealth-lab, adding a stop hurts the overall profitability.

although it seems stops hurt profitability in tests, it does make sense to me to just not allow big losers.

there is one point jack/bubba7 says a lot and i always think to myself that there really might be something to it. here is an example:

when i read that from jack, my first question was, well what if you enter a trade and it immediately goes against you? what if it never comes back to do a wash?

but then i thought, if you are on the correct side of the market, maybe it won't go immediately against you. maybe if you're on the right side of the market, but too late, maybe it bounces around a little bit before direction changes, giving you a clue that you should get out.

i don't know what else to say. maybe others can add something to the discussion....

 

GG, are you actively trading?

 

i've been trading real money every day since 1999. the people that think i'm some paper trading newb don't have a clue about me.

i don't want this thread to be about me, though. so if people reply attacking me or ask questions about my trading, i'm not going to reply. i just want to get a discussion going on this topic.

 

The problem that arises is when you exit early (not following plan or system) and it comes back to your target, is it is pretty hard to recover mentally (at least for me).

 

Have you tried to limit your testing to certain periods, say 9:30-12:00 and then 1:30-4:00. Then adding stops may not hurt that much if at all.

Most of what Jack says is bogus, anyway. A friend of mine shared with me his trading methods. There were 5 of them and they were written on 2 standard pages using Word.

Now compare this to Jack's rantings and you will understand why I doubt he has much of value to offer. He says you need to avoid noise in the markets, yet he creates more noise on this board the rest of the ET members combined. How can you trust someone like that?

 

has anyone noticed if you add a stop loss to a system in wealth-lab/tradestation, the overall profitability goes down? however, i thought a trader is supposed to stop losers fast.

i'm aware that if you use a large stop, you need a bigger account to withstand the drawdowns. but, if you have a big account, do you accept the large drawdowns and go for the best return, or do you use small stops and take the lower profitability with smaller drawdowns?

either way, it still bugs me that everyone says to cut losers short, but if you backtest that, you won't make as much money as if you had no stop. also, not only does jack suggest not getting out on a stop, he says get out even earlier than that.

so i see 3 options here...

-very large stop. this will test most profitable in backtests.

-common stop loss like most people use. may make money, but not as much in backtests without a stop.

-jack hershey concept. even a common stop loss is allowing too much room for losers. get out as soon as it doesn't go your way.

 

I think this is one reason newbies struggle so much....they don't know when to break the rules. Knowing when a trade has a high probability of failure and exiting before your stop is hit only comes with experience. In the mean time, be more selective and honor your stops like a robot.

 

IN A LOSING GAME SUCH AS TRADING, WE SHALL START AGAINST THE MAJORITY AND ASSUME - WE ARE WRONG UNTIL PROVEN CORRECT! (We do not assume we are correct until proven wrong.) POSITIONS ESTABLISHED MUST BE REDUCED AND REMOVED UNTIL OR UNLESS THE MARKET PROVES THE POSITION CORRECT! (We allow the market to verify correct positions.)

http://www.webtrading.com/phantom/chapter5.htm

 

Phil started out in trading the way most people do – using the “hit-and-miss method” – by making random attempts until some strategy worked or until there was no money left to trade. In the beginning, Phil was not afraid to make choices because he felt that the losses were the price of doing business. However, when the losses started threatening his survival in trading, they became painful. The more pain he felt, the less he was able to make trading choices even though he had more experience.

Phil would either get into a trade too late or not at all. If he was in a trade, he would get out too early because he was afraid of losing the small profit he made. All the unresolved losses of the past were now a part of his every moment. He did not understand why he felt such intense feelings, because there was no story content in his thinking that would reveal that his fear was coming from past events. He was “green stamping” the losses of the past, and they brought in high dividends of negative consequences.

by: Adrienne Laris Toghraie

solution in SFO Mag August/Sept

 

If you trade without stops, the market WILL eventually bust you. Period!