Trading with a Stop Loss in the Futures Market is for Losers

failed_trad3r · Jun 26, 2011

Quote from logic_man:

Every trade I put on is based on a specific hypothesis about how the market will behave in the future based on the relevant past action (duh, freaking obviously, since that is all anyone can do unless they have a crystal ball), including a price beyond which it should not go. If it goes beyond that price, my REACTION is to exit because the trade has now disproven the hypothesis. Your idea that suddenly the market will reverse one tick beyond my stop and go in my original direction is NOT the norm, so using that as the basis for decision making is empirically invalid. Again, if you look at the probabilities and the actual distribution of prices, you'll see that the "one tick beyond a stop and then reverse" is highly unlikely and who knows for certain how far beyond the stop it will advance before reversing? No one knows, so why pretend that I do and expose myself to addition risk of adverse excursion? I'm not buying and holding here.

My system is so specific that even a deviation of one tick or one second of time can negate a signal. It's more like engineering than anything else. Just like an engineer wouldn't let someone build a bridge an extra inch beyond the specifications, I don't let trades move an extra tick beyond where the hypothesis says it should go because, within the limits of the hypothesis, I know the probabilities of what the outcomes are, while outside those limits I am exposed to the "fat tails" of the market. My risk has gone from strictly defined to undefined (or, if I held to zero, it's defined as the size of my initial position. Again, I've said earlier that zero is a valid stop, just not one I prefer to use). Why would one go from strictly defined risk to undefined risk? It makes no sense, especially since in order to transition from that defined risk to undefined risk, you've already experienced an adverse excursion, i.e. the market has already been telling you that you are wrong. Unless you have a highly-likely reason to believe that mean reversion will kick in and eventually put your trade into profitability, on what basis are you holding it?

Just give an honest answer to this question: If you had gone short in March 2009 after the bottom, would you still be holding that position? On what basis? That is the kind of "fat tail" you are exposed to without a stop.

If you can use the extreme example of a "one tick beyond your stop and reverse" to try to invalidate my perspective, surely I can use March 2009's bottom to invalidate yours.
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you are basing your exit if stop is hit on price action previous to opening your position.

but you are basing your exit when profit is made on price action previous to opening your position, plus the price action between opening your position and profit target reached.

since you say you exit based on price action, or stop, i think you never have a set profit target in mind, also it seems you never adjust your stop.

this means you have two exit systems, not one, and this makes no sense. maybe your system is profitable but your system really makes no sense.

if you go short the march bottom based on system, and system doesnt tell you to get out after a 100% run, your system sucks. it doesnt mean stops are good.

athlonmank8 · Jun 26, 2011

Quote from the1:

When the fuck did I say I let the market go against me 20 points? Keep placing those stops and I'll keep hunting the fuckers. I made great coin doing precisely that today. I was tempted to post a chart to show you <b>exactly</b> how I do it but why should I educate you fools when it's so damn easy to take your fucking money.
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You're running stops now?! wow....i'm speechless. Please post your chart. I'd love to see what the holy grail looks like according to someone with such a big head.

When I put on a trade there are a number of factors for it. Why would I need to let a position work against me like you suggest? That's plain amateur.

Quote from the1:

You are taking a bigger risk than I am. What happens if the market jumps past your range as it most certainly did during at least one of the events you named. What happens when the Fed cuts 50 bps and the next print is 25 points higher than your entry? I suppose your range is that wide then?
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The world could end tomorrow too. Better figure out how to hedge that one as well.

athlonmank8 · Jun 26, 2011

Quote from the1:

I don't mean this in a disrespectful way LM, but that's precisely the type of trader I take the opposite side of. This may not describe you, but the most logical place that traders place stops is below/above a previous reaction low/high. Once the market penetrates these levels, even by as little as one tick, it's frequently followed by a surge in volume followed by a reversal. Folks that place their stops that close are weak traders and they are easy prey. To avoid becoming that trader I need wiggle room, whether it be 5 points, 10 point, 20, whatever.
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Yeah that's your problem. 5 10 20 50 100. Where does it end?! Really you just proved to me you've got some learning to do. You think we're just gambling on a level like you suggest?! Get real.

So you've got your entries a tick away from the level. There's another chunk of guys who place theirs directly on the level. I do none of the above. The area that you suggest may be an excellent area to reverse my position. But you're too arrogant to realize that.

logic_man · Jun 26, 2011

Quote from failed_trad3r:

you are basing your exit if stop is hit on price action previous to opening your position.

but you are basing your exit when profit is made on price action previous to opening your position, plus the price action between opening your position and profit target reached.

since you say you exit based on price action, or stop, i think you never have a set profit target in mind, also it seems you never adjust your stop.

this means you have two exit systems, not one, and this makes no sense. maybe your system is profitable but your system really makes no sense.

if you go short the march bottom based on system, and system doesnt tell you to get out after a 100% run, your system sucks. it doesnt mean stops are good.
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For clarity's sake, in that discussion I was talking about an initial stop. I actually do move stops based on favorable excursions. I don't use profit targets.

When you say that your system would have told you to "get out" if you had the bad luck of going short at the March 2009 bottom, how is that different from saying your system does use stops? It seems like you are playing a semantic game just to avoid using the word stop. If you exit a trade before it is profitable, before what you are trading goes to 0 or before your account goes to 0, you are using a stop. Why not just admit it because the alternative outcome is that if you had shorted on March 6, 2009 and weren't using a stop AT ALL, you should still be short. Period.

failed_trad3r · Jun 26, 2011

Quote from logic_man:

For clarity's sake, in that discussion I was talking about an initial stop. I actually do move stops based on favorable excursions. I don't use profit targets.

When you say that your system would have told you to "get out" if you had the bad luck of going short at the March 2009 bottom, how is that different from saying your system does use stops? It seems like you are playing a semantic game just to avoid using the word stop. If you exit a trade before it is profitable, before what you are trading goes to 0 or before your account goes to 0, you are using a stop. Why not just admit it because the alternative outcome is that if you had shorted on March 6, 2009 and weren't using a stop AT ALL, you should still be short. Period.
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i think u r using the semantics game. if a system is telling to exit, you exit. if your system based on price action tells you to exit, you exit.

however if you exit based on your original stop, you exit not based on price action after initial stop. Now you say you adjust your stop. But this means your stop will keeps lagging the market. I already know your rebuttal. Market moves to fast if you dont use a stop. I can rebut this easy, if market moves to fast so you need to use stops, then why trade at all? clearly trading is then a losers game, you cnanot react like HFT.

In a nutshell, stops are for losers.

If i was shorting at march 2009, and my system tells me to shay short for 2 years through a 100% rise, I stop trading the system. It's common sense. A good system doesnt allow for 100% drawdown. This has nothing to do with the merits of stops and you know it, you just bring it up but it doesnt help your point of view at all.

athlonmank8 · Jun 26, 2011

Quote from failed_trad3r:

i think u r using the semantics game. if a system is telling to exit, you exit. if your system based on price action tells you to exit, you exit.

however if you exit based on your original stop, you exit not based on price action after initial stop. Now you say you adjust your stop. But this means your stop will keeps lagging the market. I already know your rebuttal. Market moves to fast if you dont use a stop. I can rebut this easy, if market moves to fast so you need to use stops, then why trade at all? clearly trading is then a losers game, you cnanot react like HFT.

In a nutshell, stops are for losers.

If i was shorting at march 2009, and my system tells me to shay short for 2 years through a 100% rise, I stop trading the system. It's common sense. A good system doesnt allow for 100% drawdown. This has nothing to do with the merits of stops and you know it, you just bring it up but it doesnt help your point of view at all.
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If that's the case......it's amazing how little effort people like putting into this.

logic_man · Jun 26, 2011

Quote from failed_trad3r:

i think u r using the semantics game. if a system is telling to exit, you exit. if your system based on price action tells you to exit, you exit.

however if you exit based on your original stop, you exit not based on price action after initial stop. Now you say you adjust your stop. But this means your stop will keeps lagging the market. I already know your rebuttal. Market moves to fast if you dont use a stop. I can rebut this easy, if market moves to fast so you need to use stops, then why trade at all? clearly trading is then a losers game, you cnanot react like HFT.

In a nutshell, stops are for losers.

If i was shorting at march 2009, and my system tells me to shay short for 2 years through a 100% rise, I stop trading the system. It's common sense. A good system doesnt allow for 100% drawdown. This has nothing to do with the merits of stops and you know it, you just bring it up but it doesnt help your point of view at all.
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So, how is "your system telling you to exit" different from a stop?

And, even if you "stop trading the system" at some point, you're already in the short trade in the example. What are you going to do, go to the exchange and say "Hey, that short trade I put on without a stop actually was generated by a failed system that I've stopped trading with, so can I have my money back?"

WTF?

And your "rebuttal" to something I never even said or would have said is completely irrelevant.

Please don't respond. Please.

al trader · Jun 26, 2011

trading with stop or not. 99.99% lose

fullautotrading · Jun 27, 2011

Quote from al trader:

trading with stop or not. 99.99% lose
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The basic problem with the mechanism of using stops on single trades is that it is "inherently" weaker than others.

A wildly smart trader could anyway be profitable even systematically closing unprofitable trades, especially because he develops an instinctive feeling about entry points and exit points, often by translating in a local context a concept of measure exhaustion, not even needing any indicator, bur simply taking a glance at charts.

The point is another though. While one can be as smart as to make profit anyway, it's the trading "mechanism" itself which is inherently poor. It is infact pretty straightforward to see that. Just perform simulative experiments. People who don't program and don't make rigorous experiments may be deluded and think that single trades stops are the best protection mechanism.
It turns out, from objective experiments, that instead they are a poor way of doing that.

It's like running with a weight of 10 kilos tight to you leg: sure you can still win the race, but takes more effort. You have the "mechanism" against. If i can choose, i prefer to start with a mechanism with helps me, not that slows me down (maybe you would put springs under your shoes).

To see that, try putting the simple take profit/stop strategy in any random simulator and see what are the results.
You say mkt is not random ? Sure. But what i am saying is that the trading "mechanism" is inherently weaker.

Let me show what may look like a simulation on a simple folio of 2 instruments with a simple rule take profit at 10 *s and stop at 5*s where s = $250 (i am being generous using a decent entry rule). (These are avg results on 20 trading session of 3 weeks each.) Want to try different values for stop/tp ? Sure. Let's try.
Code:
 ---------------- Main indicators ----------------

Avg Invest Efficiency ($/MDD):   1,663.46 (min: -4,486.44 max: 12,943.24) x100K Invest (DD)
Coeff Var Daily PNL increase:    -0.39 (min: -10.64 max: 7.72)
Max Investment (DD) ever:        -15,488.40$ (Avg min negative DrawDown: -8,054.26$)
Min PNL ever:                    -14,422.00$ (Avg min PNL: -4,973.40$)
Max Abs Position ever:           2.00 InitPackets
Avg Posit Efficiency ($/MaxPos): 5.33$ (min: -347.44 max: 303.82) xPacket  
Avg Sharpe Ratio:                3.17 (min: -0.75 max: 10.23)
Avg Sortino Ratio:               10.12 (min: -0.78 max: 54.12)
Number of sessions:              20 (360 days in total, equivalent to about 1.43 trading years)

 ---------------- All indicators -----------------

Loss Rate (% Sessions negative):               30.00%  (6/20)
FirstSessionNegative:                          2
FirstSessionWhenAvgBecomeNegative:             2

Realized_Daily_Avg_AVG:                        -11.81 (min: -715.17 max: 530.40)

Commissions_Daily_Avg_AVG:                     3.05 (min: 2.27 max: 4.00)
FilledOrders_Daily_Avg_AVG:                    1.27 (min: 0.94 max: 1.67)

DrawDownNegative_Session_Min_AVG:              -8,054.26 (min: -15,488.40 max: -3,904.40)
PNL_Session_Min_AVG:                           -4,973.40 (min: -14,422.00 max: -429.80)
Unrealized_Session_Min_MIN:                    -2,337.10

Position_Session_Min_MIN:                      -1
Position_Session_Max_MAX:                      1
PositionABS_Session_Max_MAX:                   1.00
PositionABS_Session_AsInitialPackets_Max_MAX:  2.00

Value_Session_Min_MIN:                         -211,480.00
Value_Session_Max_MAX:                         203,035.00
ValueABS_Session_Max_MAX:                      215,232.50

RATIO_PNL_AvgPerDay_DrawDownNegative_Session_Min_AVG:                   1,663.46 (min: -4,486.44 max: 12,943.24)
RATIO_Realized_Daily_Avg_DrawDownNegative_Session_Min_AVG:              1,302.25 (min: -4,617.43 max: 11,461.29)
RATIO_PNL_AvgPerDay_PositionABS_Session_AsInitialPackets_Max_AVG:       5.33 (min: -347.44 max: 303.82)
RATIO_Realized_Daily_Avg_PositionABS_Session_AsInitialPackets_Max_AVG:  -5.90 (min: -357.58 max: 265.20)
RATIO_PNL_AvgPerDay_PNL_Session_Min_AVG:                                6,740.22 (min: -5,089.64 max: 42,390.52)
RATIO_Realized_Daily_Avg_PNL_Session_Min_AVG:                           6,057.49 (min: -5,238.24 max: 42,390.52)
RATIO_Commissions_Daily_Avg_PNL_AvgPerDay_AVG:                          3,513.40 (min: -1,505.94 max: 14,801.28)
RATIO_Commissions_Daily_Avg_Realized_Daily_Avg_AVG:                     2,713.72 (min: -10,495.63 max: 16,330.97)
RATIO_Realized_Daily_Avg_PNL_AvgPerDay_AVG:                             36,139.70 (min: -129,398.94 max: 180,987.87)
RATIO_PNL_Daily_Avg_AbsDaily_PNLIncrease_Avg_AVG:                       0.40 (min: -1.00 max: 1.00)
RATIO_PNL_AvgPerDay_AbsDaily_PNLIncrease_Avg_negative_AVG:              0.05 (min: -0.47 max: 0.59)

CV_Daily_PNLIncrease_Annual_AVG:                                        -0.39 (min: -10.64 max: 7.72)
CV_Daily_ArithmReturn_Annual_AVG:                                       0.98 (min: -4.98 max: 8.99)
CV_Daily_LogReturn_Annual_AVG:                                          3.17 (min: -0.75 max: 10.23)

SharpeRatio_Annual_AVG:                                                 3.17 (min: -0.75 max: 10.23) [assumed: rfr = 0, SharpeRatio_Daily * Sqrt(252) ]
SortinoRatio_Annual_AVG:                                                10.12 (min: -0.78 max: 54.12) [assumed: hurdle = 0, NOT including 0s, SortinoRatio_Annual * Sqrt(252) ]
<b>
PNL_Session_Final_AVG                                                   191.72$ (min: -12,507.80 max: 10,937.40), std: 6,437.29
PNL_Daily_Avg_AVG:                                                      10.65 (min: -694.88 max: 607.63)
</b>PNL_Daily_Avg_STD:                                                      357.63

RATIO_PNL_Daily_Avg_AVG_DrawDownNegative_Session_Min_MIN:               68.77 x100K MDD
RATIO_PNL_Daily_Avg_AVG_PositionABS_Session_AsInitialPackets_Max_MAX:   5.33$

instr:
YM_SIM_5_1_10000_0_0.01_0.2
EUR_SIM_125000_0.0001_1.2_0_0.02_0.1
It's easy to see that using different hedging mechanisms, even keeping fixed the other rules (entries, etc.), we can have significant performance gains.

Tom

cornix · Jun 27, 2011

Those, who trade without stops lose in much more painful way.