Small Stops

Discussion in 'Technical Analysis' started by FreakofNature, Feb 4, 2012.

  1. dom993

    dom993

    I have to disagree that there exist a perfect stop placement ... for a given entry price, the amount of heat that the trade could take & still end-up being a winner isn't a step function.

    What we are dealing with are probabilities ... say I am counter-trend trading the ES, and using an initial stop 3-ticks beyond the current price extreme ... that gives me a 70% chance (I am making up that number) that if my entry signal is correct, I won't be stopped and will indeed have a winning trade here. Now, if I am using an initial stop 5-ticks beyond the current price extreme, I get a 85% chance of not getting stopped if the signal is correct. What is the best stop placement? It actually is a function of how often my entry signal is correct, regardless of the initial stop size (within reason). And that might very well vary with time-of-day, up vs down-trend, and a million other variables.

    Re-entry ... costs you comms, slippage & price differential between the 1st stop exit & the re-entry ... not a big deal when (intraday) swing trading, but how effective is that when scalping?
     
    #41     Feb 6, 2012
  2. Redneck

    Redneck

    http://www.youtube.com/watch?v=WM1RChZk1EU

    :p

    RN
     
    #42     Feb 6, 2012
  3. =============
    54fan;
    Good points, good buy[SPY related ]on the 39ma.

    Its probably his choice of words rather than his risk, since he mentioned 1 contract, & worst losing streak/drawdown.

    And to use SPY as example, rather than increase the stop size/decrease the position size, which is the same % math.Thats fine;but i would look for something that trends probably better;
    especially with $136 area resistance on weekly/daily charts,
    & decreasing buy volume.:cool:

    Not calling a top in that uptrend;
    but its clearly an older trend than FEB 1st/groundhog week.:D
     
    #43     Feb 6, 2012
  4. tihfa

    tihfa

    if small stop is considered to be smallest setup violation range, what should that range be with respect to projected reward range?

    basically, do we care more about R:R or stop amount by itself?

    is there a R:R ratio such that further price action understanding or stop optimizing is not required to be consistently profitable week in and week out?
     
    #44     Feb 6, 2012
  5. I doubt there are any eternal principles of R multiples to successful trading, but a method I like has an R multiple of about 3 with a win rate of about 55%.

    If something like that gives you a few trades a month and your position size is optimized, you're doubling your account in a year.

    :D
     
    #45     Feb 7, 2012
  6. Handle123

    Handle123

    In my backtesting of ES, small stops work well trading S/R in chop, but in trending markets, larger stops are required. In my own trading, I don't use any Protective stops trading ES, but I do not recommend, I also average down on each trade as well. I think stops are more for a catastrophic occurence, the ES is seldom in this state except for release of reports or new flashes.

    It still comes down to your money management rules, whether it is price or time, last thing you want happen is to have Protective stop to be engaged. I had seen way too many traders thru the years allow their stops to take them out of a trade when they could have gotten out earlier to save some tics cause Price had changed trend, or trendlines or pivots gotten violated.

    Many traders get into that "hope" phase, like a deer in headlites cause their trade is against them. Too many concentrate on getting in, when they should work on getting out, 5% of the trade is getting in, 95% is the exit.
     
    #46     Feb 7, 2012