Setting "Proper" stops in trend strategy?

Discussion in 'Strategy Building' started by Carneros8, Feb 4, 2019.

  1. qlai


    I don't think so ... The point is that in a trend, you are always better off with NO initial stop! Higher highs and higher lows, right?
    #31     Feb 5, 2019
  2. what if you bought the exact high upon entry?
    #32     Feb 6, 2019
  3. Visaria


    You are stopped out when it goes down and hits your stop.
    #33     Feb 6, 2019
    tommcginnis likes this.
  4. tomorton


    The main argument against setting stops is that because you have declared where you want to be stopped out, your broker will move price to trigger your stop and they will pocket the proceeds.

    There are obvious flaws in this whole scenario. But leaving these aside, let's suppose you use a mental stop to exit a trade which has unexpectedly turned against you. So right away, you're prepared to take two additional risks - one, that you will not see that price has moved against you and you will therefore not be able to manually exit, and you eventually get slaughtered when it turns out it wasn't just a pull-back: and two, that you will not be tempted to let price run a bit further against you as it might turn round, and a bit further because its momentum has now slowed down, and a bit further because you expect some good news.............. and so on.

    Whereas, in a trend-following strategy, what's the harm in getting prematurely stopped out by a pull-back? So you bought in at 153.00 and you expect price to go to 160 for a profit of 7, but price falls back to 149 and you're stopped out for a loss of 4, which is annoying because the trend's still intact. So, is that the end of the game? No. You still expect price to go to 160 so you can now buy back in at 149, and exit at 160 for a profit of 11, less the 4 on the first trade, for a profit of 7. What's wrong with that?

    Even better if you set your stop at 149 and your broker really does rig their quotes down to 149. They cannot keep their quotes adrift for long before they have to adjust back to the underlying, as not only you but all the other clients will be piling in with a target of 160. If you check the underlying when you are stopped at 149, and the underlying's at 150 and the trend's still intact with a target of 160, that's a clear buy signal and now the broker gets slaughtered because instead of you just getting 7 profit, you double up and buy back in at 149 but you also buy back in at 153 again. So now you have 18 profit, and it was the the broker who telegraphed you to do it. On top of which, they offered you a long position at 149 whose actual underlying price was 150. How long do you think they'd stay in business?
    #34     Feb 6, 2019
    Visaria likes this.
  5. qlai


    You are talking about forex? Legit brokers don't trade against customers.
    How many 4 point hits will you take before giving up? Maybe you have not lived through a choppy market?
    #35     Feb 6, 2019
  6. Visaria


    I'm not tomorton, but I would take as many as necessary as long as I felt the trade still made sense.
    #36     Feb 6, 2019
  7. Visaria


    As we both know, the broker can't move the entire forex or futures market a bean so this argument against using stops is a bit silly.
    #37     Feb 6, 2019
  8. TommyR


    Dont stop out. In general any system where you are actively looking hit loses fast should be treated with suspicion for what i would say are obvious reasons. There are other options. For example, do a different trade where the profit boundary of the sum is closer in expectation net of the bid offer so you don't have to worry about the pnl going down. You will need a higher volatility and locally different sign on the correlation. Dont let the notional sizes grow or use up capital for cumulative positions that don't move anywhere but cost bid-ask. Stops on losing trades are a really mental idea and should be last resorts if its definitely wasting capital that is better spent on new stufff otherwise you are better off just doing a bit in the opposite direction and waiting for the net to be in the money if you have time. Trailing stops for in the money trades are just costing you. Most trades are in the money at some point in time unless you have very weak signals so definitely hit those prints.
    #38     Feb 6, 2019
    yc47ib likes this.
  9. Visaria


    I don't understand any of this, sorry.
    #39     Feb 6, 2019
    tomorton likes this.
  10. tomorton


    Yes, I know legit brokers don't trade against customers. But its a nightmare scenario that many losing traders complain about. I was trying to demonstrate their irrationality.

    4 point hits? Ridiculous. This is just a scenario, an example with simple numbers of the guys with simple minds. I do not recommend having a stop-loss set at 4 pts back from a 153pt purchase price. These numbers are not drawn from any actual trade I have been involved in.

    Choppy markets? I started trading via options and shares before the tech boom. So, yes, seen one or two, a few.

    qlai - I am drawn to conclude you think I am an idiot........ or are you just having a laugh?
    #40     Feb 6, 2019