Tight Stops

Discussion in 'Strategy Building' started by WaveTrader2004, Nov 13, 2004.

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  1. The secret to consistent and profitable trading no matter what approach you use for trade selection is to never stay in a trade when it breaks back through your entry point by more than 6 ticks.

    I came to this Elite Trader site to clear up a matter I was told about and after I had done that I began reading some of the threads.

    Over all the years I have been in this business (now going on for 23 years) I have just about witnessed everything anyone could dream up.

    Seems to me that most people who lose money when they start out do so because they do not understand the first rule of gambling. PROTECT YOUR CAPITAL!

    I am not here to solicit trading principles to anyone but while I am here I can give you a little bit of advice and if you take it on board you will save a lot of heartache if you are contemplating being around this business for a long time.

    1. Watch the news services constantly.
    2. Bloomberg is a good one if you are trading the ES.
    3. Don't buy or subscribe to newsletters that make forecasts.
    4. Wait for trading setups and enter your trades when everything is in your favor.
    5. Take what is there and don't try and hit home runs.

    Each day the market opens it sets a benchmark for the day and gravitates up and down from there depending on the mood it is in for that particular day.

    Traders have habits and as the market moves from level to level they are forced to make decisions. The first decision is am I winning or losing so do I risk losing more or do I stay with the trade.

    If you stay with any losing position you risk ruin and lose the opportunity to identify new situations from which making a profit is easy.

    So if you can understand that the only way to give yourself a reasonable chance of making money is to cut positions quickly if they are not working you will be doomed to failure.
  2. jbt


    In rangebound day 6 tick stops will just make mincemeat of you account. It's not unsual to have 11 stop outs in a row.
    PRESERVE YOUR CAPITAL - yes but 6 tick stops is not always the right way to do it.
  3. a large position with a tight stop is taking on higher risk than a smaller position with a proportionaly wider stop.
  4. You haven't learnt to identify when and when not to enter a trade.
  5. 6 ticks? Stops that are that tight are more likely to be a traders problem than a viable solution to sustained profitablity. You either have the best entries of any trader I have ever encountered or your trading a market where the tick size is much bigger than I am accustom to.

    Please elaborate on the markets you are refering to and give some type of example of what you use for entry that allows you to put your stops so close and not get stopped out extremely often.
  6. A large position with a tight stop will make a lot more money when it works than a small position with a wide stop that will not make a lot even if it turns into a winner.

    Half the problem with people who think they understand risk is that they trade off the chance of making money because they want to buy time.

    My approach is it either starts winning straight away or you cut it.

    Think about it but if you are using trend oscillators to enter trades they require room to work and because they require room the pro's take your money every day with the ebb and flow of the market.
  7. My advice works and I only put it up here to get some of you to think why you can't make money week in and week out.

    I know the truth.
  8. "Please elaborate on the markets you are refering to and give some type of example of what you use for entry that allows you to put your stops so close and not get stopped out extremely often."

    The market opened and traded back to the prior breakout high at 1171.75 - the trend was up and the 3 day swing was still intact and up. The pro's bought the retest right to the tick and the market rallied. Following that the market made 2 corrections of 2.25 each and kept going up it never came back to test the 1171.75 and as you can see if you look at Friday on a 5 minute it never had a correction over 2.25 after the initial buy at 1172.

    Anyway I can explain it over and over day in and day out but I didn't come in here to do that - I just saw a whole lot of lost sheep when I read some of the threads and thought a bit of advice wouldn't hurt them.
  9. and how much are you charging for it this week, Mr. Gilmore?
  10. not true. the patience afforded by smaller size on entry is also available on exit. a smaller position with wide stops is far easier to ride all the way to the moon than a large position that has to be closed at the first hint of trouble.

    a six tick stop on ES - which is only 1 handle worth of movement - is for scared money.

    #10     Nov 13, 2004
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