So doesn't using "tight stops" necessitate

Discussion in 'Trading' started by IronFist, Oct 21, 2008.

  1. ... (almost) picking tops or bottoms?

    Every time I use "tight stops" I get stopped out regardless of if I had the right direction or not.

    I'm defining "tight stops" to be 3.25 points on the NQ (13 ticks).

    I read a, um, "study" on here where where people did some research over a billion years of data and their result was that "...if price gets more than 7 ticks away from you, chances are it won't return."

    So by that definition, 13 ticks would be more of a "loose" stop than a "tight" stop, amirite?

    The only time I don't get stopped out is when I get lucky and pick a top or bottom (or come within 12 ticks of it)

    (this is only for trend following. counter trend is entirely different, especially if you average down)
  2. use the 2-1 approach
  3. I'm going to need a little bit more info than that :D
  4. Are you trading reversals?
  5. Most people dont believe my stops when I tell me. Mine are very tight and I go to BE very quickly. But as I get a winner I do not tighten it much further.
  6. playing with you bro....2-1 approach is not well like among traders, but those that do use it, pretty much succeed very well at it.

    2 contracts - set your stop loss

    Liquidate 1 contract when you see $100 profit

    Move the other contract at entry point or 1 tick above entry point

    If market comes back (long or short), you at least cover commission and made some profit....if it does not come back, you ride it using your techniques.
  7. I have done extensive research on the use of stops, both tight and wide and the only time they enhanced performance was when they were left out about 20 points, which essentially is no stop. Keep in mind, this was on a scaling system and it wasn't tested on today's volatility so the stop may have to be increased to 30 points.

    The only reason traders use stops is to avoid <b>the big one.</b> What they don't realize is it's not the big one that will kill you -- it's the 1000 little ones. Avoiding the big one can be solved with extreme patience.
  8. If you are trading multiple lots 5 or 10, same technique, if there were a 5 lot, you would liquidate 3 contracts.

    If you were trading a 10 lot you would liquidate 5 contracts...and etc
  9. Think about this for a minute.....if you put a trade on and it stops out but eventually goes in the direction you anticipated what is the problem? Simple answer: Lack of patience.

  10. Ah. Kinda hard if you're only trading 1 contract :D

    I haven't done the math to see how much gain you need over time to make 2-1 profitable over fixed lots. Every initial loss will be significantly more, and you will need significantly longer runs to balance them out.

    In other words, if you're trading fixed lots, a 10 tick loss and a 10 tick win balance each other out.

    If you're trading 2-1, a 10 tick loss and a 10 tick win end up with you still being negative.

    The only advantage I can see for 2-1 would be for replacing hard TARGET PROFITS. That way occasionally instead of getting x profits, you would get >x profits on your one remaining contract as price went up and away in your favor.

    Any statisticians want to correct me here?
    #10     Oct 21, 2008