Why some people cry about their stops :)

Discussion in 'Strategy Building' started by harrytrader, Mar 2, 2003.

  1. <IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=212051>

    This is an estimation of Dow Jones "intrinsic" standard deviations for each scale intervention

    I use the term intrinsic in the sens used in quality statistical control: intrinsic means the minimal expected standard deviation. This can be useful to realise that some stops are just unrealistic: if you take signal on daily scale and put a stop that is too tight well don't cry since there is a huge probability that it will be executed :)
  2. volatility and time-based trailing stops.

    the distance between the current price and the stop is positively correlated to the volatility and holding period.
  3. There are many factors which contribute to how much the index wiggles in different time frames: Market makers and scalpers need to gross the most because they have the highest expenses. Therefore one will always be able to achieve the highest gross profits by trading the shortest time frame (assuming one is equally apt to trade all time frames). On the weekly or monthly time frame, things like decimalization or especially a change in transaction fees should have almost no impact on the observed variable.
  4. oh man, here we go again. So therefore, I should just place my profit target where my tight stop was because as Harry says, "there is a huge probability that it will be executed"
  5. I think you should correct your phrase because some words are missing or I really don't understand ...

  6. No Profitseer, I think HarryTrader was thinking more of the loss than the profit. He would place his stp loss which could give his trade 'more room to manoeuver', i.e. he will not get jiggled out, and the value is not blindly determined, but is based on his statistical calculations. As for the exit, it would depend on the trade's plan.

    HarryTrader, would it be possible for you to post the same charts for the Eminis S&P, Nas and 10yr bonds? With all the long tails I saw lately on the mini Spoos, it would be interesting to see the values. Thks.

    Cheers!! :)
  7. I don't have calculations yet for SP - because I don't trade SP - but I can do so perhaps tuesday (Monday I will be too busy) and now I have to go somewhere.

    Sure I talk about the loss : it's in the title :). Nevertheless I didn't say that you should absolutly put your stop equal to that numbers : it depends on the framework used: if your framework can permit to chose the entry point with precision, you can put a rather tight stop (as for me I can generally use 4 point stops because my calculated points is precise within 2-3 points up to daily scale - so even below the standard deviation of the 1 minute scale ! - and 8 to 13 points for calculation on weekly and 35 points on monthly scales) , but many have more or less precise entry so that they have to let more rooms that can be 1 standard deviation or even more depending on their system. If one take position on daily scale (position trading) but monitors their entry after the first half hour it would be reasonable to enter the market with a stop of about 1 standard deviation of this 30 minutes period that is to say roughly 25 points (I forgot to put the 30 minutes point it is about 26) so that to cut their position shortly if they are wrong. But if you don't want to monitor your entry then you have to put a much larger stop. That's why I can't say put your stop at this point since it will depends on your system. But in any case the numbers above can be a useful jauge.

  8. I CAN'T TAKE IT ANYMORE! If the close stop is so sure to get hit, then why not set a close profit taget which will supposedly be so sure to get hit? Who needs to let profits run if close profits are a "huge probability"

    I can tell you, from a guy who would love to buy the bid and sell the ask, it is not easy or probable or sure. Try joining the spread 7 out of 8 times and tell me how you do it.

    I just took exception to the phrase "huge probability".
  9. Profitseer,
    If one uses HarryT's standard deviation as a strategy for trading, he will get in a trade with both Stp loss and Stp profit having a 'huge probability' of getting filled. Therefore, the ratio of $Loss/$Profit would be 1:1, and in the long run, it's a loosing plan if you include commissions.
    I will not blindly include HarryT's statistic numbers into my trading, but willl complement it into explanations of my stopping out, e.g. I see that I got stp out only to see that the price moves back into my direction, and the 'shaking' seems to follow HarryT's standard deviation, I will simply modify my ENTRY point, that's all.

    As for scalping the spread, one could do it with stocks, you just have to shave 0.0001$ above the best bid, or under the best ask and you'll be the first one in line (in my day, it was 1/256 or even 1/512 $ :D ). But with the futures, IMHO, it's impossible to scalp the spread and be consistenly profitable.

    I don't understand why you seems to get emotional (upset? :) ) about all this ?

    Cheers!! :p
  10. Funny how he gets on nerve for nothing especially when he doesn't even understand probability : probability means that you behave as if you have no special knowledge about where the market is going (even if you think you know) or if one prefers if you are wrong in your judgement of market: do you know that when you make a trading plan you must also make a trading plan for the losing side ? If you don't know read for example phantom of the pit:

    "Most traders plan only for the probability side and that, to them, is always what they consider the winning side. This is the biggest mistake you can make in trading. Instead, you must plan for the losing side."


    I can say many other things but I won't discuss with a steak of nerves :). Just also remember from Phantom:

    "We must remove the emotional element as quickly as possible in trading. If you can do it before you put on a position, you have a good start."

    Now to calm you let's say I talk about A, and you talk about B and since we don't talk about the same subject we won't never agree :D

    #10     Mar 2, 2003