Stop losses. Are they the tools of winners or losers?

I stand corrected. Averaging down is mostly when the process is done eternally.

Legging in, scaling in, averaging in is more appropriate.

ESD

 

I am not a profitable trader, but I personally believe in a hard, predetermined, well-planned stop loss.

The reason being is that emotional factor would come into play when honoring a mental stop, especially if price just so happened to blow right through it. There are some experience traders who can manage that situation to reduce their loss. For me, I don't have the know-how and I am dumb, so I will stick to a hard stop loss.

PA

 

They can be good or bad depending on your viewpoint.
I was shorting the Russell 2000 mini futures in summer/fall of 2007 (boy was that dumb !).
Pretty tights stops produced 80% losing trades. That was the bad news. The good news was that I only lost a couple of thousand.
Without stops, I think I would have lost at least $10k.

 

No stop loss? What are you afraid of?

Missing a move. If you are continually getting stopped could it be that your entries are incorrect.

Being wrong. Once you close the trade you have admitted and there is proof that you were wrong.

Losing money. You’re in the trade to make money; if you lose that’s a bad thing.

The market turning as soon as you are out. Weak hands get shook out of the market and you don’t want to be a weak hand.

That “They” are gunning for stops; if you think that will happen wait for a better entry.

What you should be afraid of is that day when the pain of seeing the market go against you becomes greater than the pain of taking a loss and you capitulate and take the big loss.

When you enter a trade you should know at what point you are wrong. When the market hits that point and you have to rationalize why you are still holding the position it is just a matter of time before you have a catastrophic loss.

Stops not only protect you from taking a big loss they also protect you from other unforeseen occurrences. How are you protecting yourself against your computer crashing, power outages, internet provider going down, or anything else that might cause you to lose contact with your broker? As a trader it’s your responsibility to protect your capital.

 

in some cases stop loss is not suitable, for example overnight individual stock trading, even in the tading session, stop loss still does not work, for a rare case, the market suddenly suspends its trading activity, and it will post pending news. so stop loss really is misunderstood or misused by many people.

put those factors into consideration, stop loss is useless. most people think stop loss will save them, but it does not. a better way or professional way is use option to protect your position (so you know how much you will lose, your loss is controlled loss).

stop loss concept is broker's idea, they want you to cut loss frequently, and they collect as much as possible commission or your overtrading fee. or they want you to be a sucker's player.

I learned it hard way. when I started to trade, I am fearless, so I made money, then I heard about the stop loss cutting way, I tried it, I started to lose and struggle, most time 99.9% time my trades should work out very profitablly, but I was stuck with the stop loss, I struggled with tow years on that, then I said to myself and I look back to my trades, I said to myself, wait a minute, why I was right and keeping giving money to the market, that is bullshit, stop it.

the better way is reduce size to a confortable way, and you are not sick of the little up/down, and you can go with the bumpy ridng, but you try to ride the major trend.

currently I am trading futures, stop loss is useful since the market is 24hrs tradable, but I rerely use it, I use mental stop loss, only when I am away from the market, I put a physical stop loss there, but as you know, that does not makes any sense, just a tick move, the stop loss may get hit, and you are right and the market moves without you, will you go mad? definitely

stop loss is a good strategy in breakout/breakdown trading or momentum trading, but not good for risk management

 

When your money is out of your hands and out where others can manipulate it, one would be foolish to not use a catastrophic stop, unless their eyes are glued to the screen, or have alerts set up to wake them up 24/7, should a level of danger be approached. By then, it is too late. Maybe oil is different. I wouldn't know. In any instrument with leverage, however, only fools trade without hard stops.

 

Not trying to start an arguement, but what exactly is noobish about that approach? He said that they have hard stops in all their shorts, but in oil futures, they were willing to avg down because they are getting a better price. If their risk is managed properly (as in oil could go to zero, and they would survive) this makes way more sense than than taking small losses all the way down, oil is not going to zero. I would bet OPM on that to.

 

Please note that I don't know much about futures, in case I overlooked something.

 

It really depends on what type of trader you are. If you are a skillful and profitable fundamental trader then you would have the ability to adapt to the present market. If the trade initially goes against you but you view the past news and movements as a minimal problem based on your knowledge of the present market then you would have the ability to stay in the trade. If the movements and news are truly insignificant but end up stopping you out then you will end up losing money. The only way you could say only winners or only losers use stops is if you believe there is only one way to trade. If that guy you met who makes 7 figures is an arrogant blowhard (that trait increases dramatically the higher the income) then it would make sense for him to come to the conclusion that his way is the only way.

 

I have traded almost 15 yrs for myself and a member firm in Chicago. and over 20 in industry. And seen huge accounts bleed out slowly "with a very disciplined methodology". A stop loss order at a price that is determine as a max financial loss or somehow not static to price activity is probably worse than none. My experience is that a stop at a price determined by market activity not a threshold of an account or trader. And they can be tight if you entered a trade at these type of prices. That type of stop has saved plenty.My goal while trading is to let the market put me in a trade as well as out. With as little prediction used on my part as possible. If anyone knew positively where the S&P was going to trade at 8:45 ......NO one would work..LOL.