automated stop loss orders

[Ainsley]

This is relatively new in Australia and growing in subscribers quite quickly.



The US has had automated stop losses for some time now how have they affected trading techniques for you all

[MR]

automated or mental stops

You are asking a pretty loaded question.

Stops can be a helpful and hurtful thing, if not placed correctly.

It doesn't matter if they are automated or mental stops, a stop loss is a must.

Before entering a trade, the trader must know precisely when he is getting out if the trade goes against him. A trader who wants to be in business for a long time has to be very disciplined about this.

Now the biggest problem with placing real stops is defining realistically where to place them.

Whether they are automated or mental stops, there still is an 'art' to the science of stop placement.

My best advice is to really get to know the market you want to trade first before you start to trade it with real money, and paper trade where you would place stop losses. Then make adjustments until you can place both entries and exits successfully. When you can do that, then the automated will become a preferred method.

All things being equal, automated stops strategies are extremely useful if you want more piece of mind. They do help you minimize losses, and force one to cut losses quickly.

I have a very good friend, for example, who just lost a big portion of his trading account this past week because he was trading a unique, specific trading technique. He was milking small profits each day. But the last 2-3 weeks he got trapped in a couple bad trades and those trades wiped out all his profits of four months. My friend did not have a clear exit strategy figured out in advance where he was going to cut losses. He had talked about placing a stop loss order, but he never did. When the unthinkable happened he tried to ride the problem out until the losses hurt so bad he was forced to sever these trades at a painful price. If he had just placed a 5% stop loss like he kept telling me he was going to do, he would have minimized his pain.

Automated stops are nice because they force discipline into a trade. But you first have to know where to place the stop correctly or even an automated stop program will not help you succeed.

Maybe others could join in and offer their insights in this topic?

Here are some interesting discussions on stop loss to read to help further develop this discussion--

http://www.hardrightedge.com/wheel/hrestops.htm

http://www.snailtrader.com/id43.htm

http://www.daytradersbulletin.com/html/orders.html

http://www.qindex.com/strategy.html

[Ainsley]

Stop Loss Orders

The solution seems to be in the area of setting a realistic stop loss so that one can stay in and let the market move a bit and ride the trend before getting stopped out.

Some of the charts Im seeing here seem to indicate that people are setting the stops really tight and cascading the market which rebounds just as quickly, so Im thinking that if the stock has the support of daily, weekly and monthly charts, then if one is quick a dollar could be made

Thanks for the clarification, the links are quite helpful.

[soylent]

Ainsley -

Totally agree w/ you on the cascading effect.

I've 'stopped using stops' because you get whipped too easily and too often and at the worst possible price -- especially trailing stops.

I still set a drop-dead stop but it's so far away from the price, I'd have to be dead to not get out earlier. Hence, drop dead...

I DO use targets -- which, really are stops in reverse. They work just dandy.

Perhaps as Marks says -- you have to know where to put them. So, for me, I put them where I'm certain I'd have found a 'technical' reason to get out of the trade before they'd ever get hit...

-c

[Ainsley]

whipsawing effect

you summarised the due process and hard learnt lessons that i've been experiencing and interestingly have arrived at the same conclusions, pain is pain no matter what market we are all in.

i've had quite enough of closing out when the price closes above the opening price of the day after i've sold on the low of the day due to the stop loss's

The automated stop loss's seem to be a process / strategy sold by the insto's that increase the frequency of trading due to being run to tight.

Rule of thumb is, if the Elliot, Gann and ellipses support the price when compared to the daily and weekly charts, then stay in and pick up some more on the return ( I bet some people are going to chew this thought up a bit)

[Keith]

It's the risk baby!!!!

I agree w/MR. You have to have a stop/loss no matter what trade you're in. The big deal here is money management and RISK. Yes, a GET trade will come up but is the risk within your trading rules? This is more important than taking the trade because it looks great but the risk is way out of line for your rules. If you keep your risk manageable you will be a great trader. If you don't use stops you are either going to be asking someone where your ass went someday. Or second guessing the trade and let it go beyond your stop w/the same result over time. The key is to establish your risk and stick to it no matter what. If you are getting stopped out too much either adjust your risk or evaluate your trading system for flaws.

[soylent]

Keith --

True, but, AGET approved stops are way too wide, IMO...

There are many more technical reasons to get out ahead of time.

If I actually hit an AGET stop, I would be dead. But, at the same time, I don't set the stop where I'd 'really' get out because it will get trounced in the noise. (I also set the stop a lot wider than AGET because when AGET fails it also means the 34 line reject failed which means a lot of stops are about to get blown which means I don't want to be the last fool in line for a fill...) So, I get out early.

Result is: I take a lot (1/3 of trades) @ B/E or +/-1 tick trades because something, technically, changed and I didn't have 100% conviction in the trade. If I see the setup re-emerge, I'll get back in...

I spent a lot of time coming to this conclusion -- cost me nearly 1/2 my money before I realized waiting for a stop to get hit was like seeing if a freight train will destroy your car... It will. 'Failed' AGET setups are almost as powerful as sucessful AGET setups!

There are a couple things I really like in investing -- I don't recall who said these but:
a) "I wait until I see a bag of money in the corner, then I walk over and pick it up".
b) "When you're going big -- you need to be right -- right away!"


-c

[Keith]

Stops

I agree about getting out. I probably wasn't clear but I've establlished my own stops. With you I found out letting the stop go to its end can be horrific. I use a real short leash when I trade but wait for the right conditions. Like you I will bail if something looks wrong all of a sudden.

[pj909]

Soylent,
Would you elaborate on a few points?

Why bother with the drop dead stop if you have a technical reason for exiting before then? Being the "last fool in line" will probably be even worse if there is a sudden price change that triggers a stop far away from the market.

You refer to AGET stops being to wide. Which setups do you trade? and What indicators do use for triggers?

I've worked with Type 1, 2 and XTL but currently focusing on T1. I pick them from a daily chart, but I don't like using the w4 pivot as stop, so I manage them on intraday charts which usually gives me a much tighter "stop" and therefor better RR (Reward/Risk) ratio.

Also, What is the 34 line???

So which is better: a mechanical exit strategy or the art and science of chart reading? I like the latter but unfortunately I've found that my art too often depends on what I had for breakfast?

[soylent]

>> Why bother with the drop dead stop if you have a technical reason for exiting before then? Being the "last fool in line" will probably be even worse if there is a sudden price change that triggers a stop far away from the market.

EXACTLY! When I say 'Drop dead' -- I really am talking about for my heirs. I'll set a stop 10pts away from market. I've never seen a stop run go past 6pts on NQ. I don't set my stops where AGET suggests because, basically, that's where everyones stops are.

I set the 10pt stop because on occasion I've lost network connectivity... This sucks but at least I know, worst case, my position will be closed at SOME point!

So, yes, sometimes I'm in a position and see it 'dump' and 4-5pts tick off NQ and I say, "well, there you go". And, I wait 20seconds and it bounces up 2-3 points and I get out for a 1-2pt loss. Does it ever keep going down? I've never seen it happen. But, I have ended up taking a 5pt loss when it didn't get going back up quick enough for me.

But, again, I try not to stick around for where 'stops' are. Because of that exact scenario... I'm usually out well before then.

AGET STOPS:
There's nothing wrong w/ them -- but, I just don't use them. For triggers, I use CCI and price.

Mostly, I only trade a TYPE 1 setup. Type 2's are nice but too much work -- you're fighting with too many indicators & I've found they can turn into 'continuation wave 3's and get really ugly.

> What is 34 line?

34EMA HLC/3

> Which is better -- mechanical or chart reading?

It's 90% mechanical, for me... But, I automated all the AGET rules in an EFS so, statistically, I know which AGET setup is going to succeed and when it won't... (NOTE: I've also modified the rules extensively from what is in the tutorials -- like, I use CCI for entry, hi/lo trend of bar prices, volume, etc)....

As for Type 1's on DAILY: I don't bother. I use DAILY to make sure nothing bizarre is going on / general trend, 60 to time a good TYPE 1 and 5/10/15m for entry. I 'scalp' off 2m.

-c

[pj909]

Would you be willing to share your efs?
I've been looking around for a starting point to add my 'rules' too. Never used CCI. I like Sto and RSI, and lately the Inverse Fisher Transform of the RSI has proven to be a great indicator.

[soylent]

pj --

>> Share EFS
I'd like to keep my edge private for now.

I like Stoch & RSI, too. But, take a look @ CCI on the 14period (for intraday) w/ HLC/3. In particular I like the trend-line breaks you get with it & how responsive it is to price. But, I've been working w/ it for a few months so I'm used to seeing how it moves.

I suppose it's like anything -- if you're good w/ Stoch or RSI, stick w/ it. I do like Stoch because of how many people follow the 5-period overbought/sold signals...

-c