Serious thread about stops.

Discussion in 'Trading' started by dinoman, Apr 22, 2007.

  1. dinoman


    The purpose for this thread is to find out everyones (especially seasoned traders) logical opinion on stops for intra-day trading.

    Lets say that one has 150K in a margin account and almost all plays are day trades. Lets assume on average that 7 out of every 10 plays end higher (if long)/(Lower if Short) by the EOD (End of Day) from their entry position. Of course there will be the news plays/etc that go against all traders from time to time. Stops will be in and yes there are bad fills on market stops.

    This person is a straight up technical analysis player.

    There analysis is played on mainly price action and volume looking at support & resistance A.K.A. Supply & Demand.

    This person brings in enough income to cover there expenses from another source with a little room to spare.

    Now, I want to provide some hypothetical scenarios on how this person would currently approach the market as far as stops go.

    I will now try to add some insight to ones thinking. We all know we would like to enter a stock and watch it go straight up instantly making that fist full of cash with no backing up! Then most traders understand that sometimes stocks will come back regardless of technicals for any possible reason.

    Most stocks played have an average of 300k in volume on a daily average for the ability to be able to exit having liquidity, of course there are exceptions.

    Now lets look at that persons current stops:
    Normally trading stocks between 20 to 100

    If long/short 500 shares approximately a .10 Stop.
    If long/short 300 shares approximately a .15 Stop.
    If long/short 200 shares approximately a .25 Stop.

    Any loss of $100 to $150 normally cuts this person from a position.

    I don't know about your opinion, but I think this type of stop system is a death wish for ending up even or slowly losing money.

    Normally this person would like to bank on average $200 a day.

    Don't most technicians trade the charts and not the money? Thus hindering the persons trading already by trading the money and not the charts.

    Now to my questions: :D

    What is a reasonable technical stop for intra-day? THIS IS THE REAL IMPORTANT QUESTION!

    Is this type of stop system ludicrous based on the scenario described above?

    How does one deter another trader from focusing on a possible $500 loss and letting a possible $3000 gainer run?

    How does one stop a trader from jumping ship early by looking at the P&L and not staying focused on the technicals? My best guess is to minimize the P&L window.

    This is JMHO, but, I think this trader is trading scared instead of trading. I understand that a $500 loss in trading can somewhat shock a trader, but if your playing the game and most of the time the trades are smart set-ups. Your overall gains will offset that loss.

    Seems like a short-term panic is monkey-wrenching a current possible success strategy.
  2. cscott


    I would not advise any serious investor to daytrade. do not use Stops because I do not find them intuitive.

    If I did use Stops, I would not place stops based on the PPS. I would base my stops on a percentage, and set that percentage at 20-25% of PPS. Set it much lower (5-15%) and you will lose a lot getting stopped out more often, only to see the stock rise later on another day.

    Stops also hurt other Buyers because every time a Buyer enters a Stop Sell Order, that keeps the price from rising. Often, it even lowers the price, contributing to a Sell chain reaction. IMOH, if you really want to help other Buyers, quit using Stops!

    Further, I guess you realize that when you put in a Stop Order, you are just making another target. Now, instead of having just 1 target price - your Buy target price, you now have 2 targets to be hit when you add a Sell Stop. Now the MMs know where your stops are, and can easily take them out. So, it's better to keep focused on just 1 target, and that is your Buy target (assuming you want to go long).

    REAL investors HATE daytraders! ...but that's another thread, sorry.
  3. stylark3


    First of all, I beg to differ. DAYTRADING RULES!

    But, you are right in one respect -- No serious investor should daytrade (the keyword being 'investor').

    But, if you are a 'trader' then that's a different story altogether.

    Secondly, brokers, these days, offer what is known as the "hidden stop". This allows you to place any stop you want without making yourself a target to the MM's. So for daytraders who want to be consistently profitable, using the hidden stop is a must. IMO

    Finally, before entering any intraday trading scenario, it is important to practice good money management techniques.

    An important component of this practice is knowing what your limitations are before setting up the trade.

    The originator of this thread suggests that his limitation is no more than a $150.00 loss per trade.

    Using that very important piece of information along with 1 other piece (namely, the stop-loss price), you must then use a formula to calcuate the # of shares you should trade which, if the stop-loss price is triggered in your trade, would yield you a loss of no more than $150.00.

    Now, basically 2 formulas are required to prepare you for the trade when based on the requirements stated above:

    1) A formula to determine what your stop-loss price should be and
    2) A formula to determine the # of shares you should trade which, as I stated before, requires the result of #1 and your $loss limitation.

    Sorry, but that's as much as I can tell you without having to charge you anything. :cool:
  4. stylark3


    2) Above should be corrected to read:

    A formula to determine the # of shares you should trade which requires the $loss limitation component and a component used in determining the resulting value in #1 above.

  5. who cares about investors? and why would you want to help 'other buyers'?? dear lord..

    you're in a daytrade, margined 4x - placing stop at 25% will bring your account to zero balance.

    so many investors these days! well, wait til the market changes direction. lol
  6. LOL. Scotty, you're as stupid as I thought. Thanks for confirming it.

    First, this site is Elite Traders not Elite Investors.

    Second, the idea that other people "not use Stops because I do not find them intuitive" is a laugh.

    Third, 5-15% stops are a laugh. My stops are set at 0.04% because I understand my market and thus when my trade will be wrong.

    Fourth, why would a trader be trying to help other buyers?

    Fifth, paranoid delusions: "the MMs know where your stops are" ... LOL.

    And finally, proving you really are mentally fucked up "REAL investors HATE daytraders." Get real. Investors need liquidity just like everyone else.
  7. Not using stops because "it may come back soon" is one of the most incorrect things a trader can only do!

    Don't know about investors, but IMO trader should use as tight stop (or even better S&R) as possible. What is possible and optimal should be determined by gathering statistics and experience with a given market.
  8. Your advise sums up neatly the common dangerous misunderstanding of any n00b trader. It is exactly how not to think when learning to trade. Is that on purpose?

  9. cscott


    Ursa, JFYI, I'm not a noob, and noobs don't trade as I suggested. I guess you like losing money. :-(
  10. I don't really day-trade, and when I do so it's only because I'm bored and have nothing better to do, heh.

    But when I trade I trade momentum, and if a stock slips 2 cents, I'm out, whereas if it's rising, I'll let it keep rising until it slips 2 cents.

    There's no one "reasonable stop strategy." It all depends on what you're doing.

    If you want to set a max loss per trade, that's fine, but I wouldn't vary the stop loss based on # of shares. If it's .15, it should be .15 for 100 shares, and .15 for 1000 shares, provided it's the same stock.

    And cscott has no idea what he's talking about. a 5 - 15% stop on a daytrade? that's ludacris.
    #10     Apr 24, 2007