There is no magical stop formula. No way to optimize. Wherever the stop, it is ARBITRARY. Some are more logical than others, but still arbitrary. I've been trading for 20+ years, and I don't have much to say that would be of value to another trader.... except KISS. At first, I got computers and tracked "everything"... thinking I could distill it all somehow to consistently good, high pribability decisions. Wrong. All through my career, I pared back "things" I watched. The more I trimmed, the better I did. Currently, I track price and one range indicator. In my mind, it's boiled down to "Take a shot. Use a stop". The key is to know what you should take a shot "at". That's where experience comes in. I suggest you study your method and eliminate all but what you think are the best "shots", and go from there. If you can get to 50% winners with good risk/reward characteristics AND you exercise stop discipline, you will be ACES!
Scarab, your question belies your major problem â "How do I trade profitably ?" clearly illustrated by your statements: "I make about 20+ euro trades a day, and of course get different messages from different charts. The tick chart seems to be good for timing an exact entry. But the one, five, ten, fifteen, and thirty may look good, bad, or neutral all at the same time depending on which chart I'm looking at. " After-the-fact stops aren't your problem, your problem is you don't have a reliable trading system. Just because you can, doesn't mean you need to or should be making '20+ euro trades a day'. One of the great benefits of trading fx is the potential to double mini/lots traded from accumulated trading profits, rather than focussing on intraminute scalps. Consider Day-to-Days (DtDs) trading, hold a position part/all/several days. Your price movement analysis must begin on the Daily chart, trading DtDs from the 60 min, don't use lower timeframes. Read âElliott Wave Principle : Key to Market Behavior' by Frost and Prechter, 1970s/1990, which will provide an introduction to price movement and Wave formations, but don't try to become an 'Elliotician'. Learn to use and apply the channel tool (Standard Error Channel in MetaStock), a simple and reliable price movement geometry tool. Learn to use the fibonacci levels tool to project price movement Corrections/Retracements, new H/L price targets/Waves. The fibo fan is also reliable. Google search 'fibonacci' for much info, trading not math. Count bars with the Lucas series 1 3 4 7 11 14 18 22 28/29 36 47, an alternate fibo series. Consider charting programs that can be programmed with mechanical trading systems: MetaStock, TradeStation, eSignal, AmiBroker. Look at the price movement on a Line chart;learn about and appreciate that reversal formations are common where a HH/LL will 'cause' an 'incorrect' trade. Every trade entered is deemed correct; you should however know what your price target/exit will be, and, what confirms the trade is incorrect before the trade is entered. Begin trades at Wave tops/bottoms, analyzed first on the Daily then 60. Trading DtDs relies on Account to Trading Margin ratio (6:1 should be sufficient) to accomodate intraminutes whip-saws not stops, since you would exit an 'incorrect trade' as soon as it signals it is 'incorrect'. Needs be that you must determine what's an 'incorrect trade' â since it's a component of every 'correct' trade. Wallace.
More sound advice. In my short time trading, I've gone through several phases of thinking I could outsmart the market, thinking I could gather tons of data and see things nobody else could see, thinking that highs and lows have been hit, only to see new all-time highs and lows (not in my favor of course). Experience and experimentation should help give a feel for the market, and the discipline to follow the guidelines and stay away from "hope". Gnome - I am experimenting with different chart time-frames and studies. What chart and indicator do you currently like? I'd like to hear from others, as well. thanks, Scarab
I use 5 minute and hourly charts + the standard, 14 bar stochastic*. Any of the other range indicators are OK too... you just have to spend some time with them to know when you need to do other than just "fade spike counter". We all know that one, but it only works about 50% of the time... and when it fails, it often fails BIG! *I also keep an eye on 14 Day RSI. Spikes at 20, + complex bottoms with divergences [usually around 30] are good for making big long plays. However, those don't come along all that often, so we must be trading off of other things while waiting for the BIG setup.
I would have to second what Wallace and Steve are saying. I have noticed a significant increase in my performance afer moving to longer time frames as suggested by Wallece. I am notwhere I want to be just yet, I sometime exit too early but am not afraid to re-enter if price continues. As far as stop placement the best thing that has helped me is to start with a wide stop and a small position size so that if that level is hit I am almost certain to be wrong. I can always scale into a position and sdjust my stop accordingly to limit my risk exposure. Many time I exit before my stop is hit because I do not like the way the market is moving, this has saved me many times. Another benefit of having a wide stop is that you are less likely to be stopped out by market noise. It often happnes that an hourly bar will spike only to retrace within the hour. A close stop will get you knocked out. I have learned that many times it is best to wait for the close of a bar before making a decision. but to do this you have to have a wide stop and small trade size. This is what I have found to imrove my trading, it may not work for you so experiment with things yourself until you find what works for you. Also, I still consider myself a beginner with much more to learn and much more experiecne to gain so take what I say with a grain of salt. The only thing I can say with true confidence is that you will ahve to develop your own method based on your personality to succceed.
Wallace, you couldn't be more correct. It is a bit of a catch-22. It is hard to practice discipline and stick to a system if I don't have one in the first place. Yet if I don't give a system a chance to work, I'll never know if it is good and is worth using. You also gave some good advice, which I'll eagerly look into. Thanks. I only wish I could practice on the weekend. Scarab
My 2 cents: It would all depend on the design of an entire system, as stops can be used for entry, exit, risk control, profit-taking, re-entry, etc. purposes. Placing stops is a part of the total system and it could have quite different approaches for such as trend, pullback, breakout, SAR, range, etc. systems. Therefore there would be no definite or fixed answers to the question of whether or not using tight/loose/no stops. Perhaps the whole chapter for Placing Stops in Stridsman's book Trading Systems and Money Management could be of interest to some system traders.
Is it safe to assume that you experienced traders watch charts/indicators and interpret the signals yourselves, as opposed to using Tradestation or Excel based systems to help generate buy/sell/stop signals?
iv been trading options due to my small capital..well options & under 10 buck shares..but lean toward options for the leverage...Im wondering..how do i use a stop with option ON ib.. if i put a close position after im in..for a set amount......ital cost me money changing it each time i do..to trail..any way to do stops properly on options like they done on stocks..or is it just a issue..watch market as close as u can and KNOW how much risk u do viar how much premium u do?