The Stupidity Of Not Using A Stop Loss

Beginner Questions
23

Every poster, except me Tymen. MP may well be friends with TRO I have no idea, but I think you’ve put 2+2 together and come up with 5. He is not TRO!

Then to the issues of stops. You’re right in endorsing them, and recommending them to everyone, but you’re not right in attacking someone for having a different opinion or way of doing things.

Risk should be central to any trader’s strategy. That I believe[I][B] is[/B][/I] fundamental and I’m sure every good trader would agree with that.How they then go about doing it is differently - some with stops, some with time-based returning to value strategies, other with semi-Martingale position sizing. All these things are possible, and it took a massive upheaval in my way of thinking to get my head around it. It made me angry when someone suggested it, as it does when anyone attacks your central beliefs about something…

Anyway, let’s chill out. It’s nearly Christmas. I value MPs posts and yours.

No group hugs though, I’m not American.

46

I hate to distract from the war of words, but I’d like to get back to the actual topic :slight_smile:

For those who don’t use a stop loss because they “KNOW” where price will go and that even though it moved against them, they are certain it will return to where they “KNOW” it was headed when they placed their order:

If you “KNOW” what the market will do, why did you enter at that time in the first place? Why didn’t you enter later, when price actually began its full-on march in the direction you “knew” it was going? Or why didn’t you open a position in this initial direction? In other words, why are you taking all this drawdown in the first place? At the very least, if you knew it might spike that far before going the direction you “knew” it would take, why didn’t you just set your stop loss just outside that range so that you could, if nothing else, set your position size based on acceptable risk?

47

while one may know WHERE something is going, one does not always know WHEN.

i very often will take a H1 or even H4 position in the morning once we ascertain trend, just to get in at the bottom, and more often than not it will reverse to lets say, a dbl btm.

i had the choice (and i teach to look for the coming of the dbl bottom and that an H1 trade will not begin REALLY moving until the evening, but its easier for me to simply take the trade and be done with it and scalp the whole move intraday ---- drawdowns are just part of the game, and i can allow them to be significant because of account size !

I could easily wait for the dbl btm (or top) but im terribly forgetful and once i DO IT, its DONE !

no other reason actually !

mp

48

If you “KNOW” what the market will do, why did you enter at that time in the first place? Why didn’t you enter later, when price actually began its full-on march in the direction you “knew” it was going? Or why didn’t you open a position in this initial direction? In other words, why are you taking all this drawdown in the first place? At the very least, if you knew it might spike that far before going the direction you “knew” it would take, why didn’t you just set your stop loss just outside that range so that you could, if nothing else, set your position size based on acceptable risk?

very good idea. IK think the wise use of stop losses is to place them according to price action like you suggest and not according to account size. If you place your stop loss simply based on the 2% rule and don’t take into account the accual volatilty of a particular instrument then you are begging to lose your money.

I think that best sums up the stop loss issue I have. I want a stop to be where it should be in respect to price and not respect to account size. Having said that i don’t use stop losses but i do have a threshold where I will close a trade but I like to be in control of my trades so I do that manually. Truth be told it allows me wiggle room which is not always a good thing.

btw tymen Im a mutt :slight_smile: not anglo. Im accually Irish, Italian, American Indian, Luthuanian, and Polish.

49

hey mutt !
(aint we all, after all ?)

if using stoplosses, of course one places them according to price activity and not account size or some arbitrary percentage – for me size is simply the “cushion” i have to play with before things get worrisome.

but in this market, its not a simple concept to set a sl, since ive had peeps tell me their sl was missed by 5 pips (which was good) or others who LOSE a trade by 5 pips, simply because their sl was hit, taking out a good chunk of equity, and THEN the poor schlumph watches the price move up to the correct tp point while knashing teeth and screaming in outrage — with this volitile market we are in, everyone is trying to figure how and where to put a SAFE sl, so being rather stupid, i just AVOID the whole issue by not using them !

also, since i play every time frame, i will have movement up, down and sideways going on for the whole day, and i would NEVER know where to put that old sl anyway, but as i said, i use the cushion of a large account to watch over me !

a timeframe may not start “moving” until im well tucked into the covers with visions of the McGiver’s dancing in my head, so rather than wake at 2am, est or later, i set my trade and my tp before the McGivers get here, and am then prepared for the overnite action, which i can then sleep through (granted, I cant scalp that action but I can start the next morning prior to the NYSE open and during !

I guess the bottom line is im lazy and beginning to like sleep more than i used to, so thats the way i do it and seems to work very nicely for me !

a stop loss does not STOP LOSS, but simply reduces your loss at some point, and OMG ---- what happens when the currency then continues back up after a minor (23 fib) retrace — things like that make one suicidal at times !

if i were smarter, i probably would never have happened on this, although living close to NYC and knowing a few “pro” traders (well, they work down there so hope theyre pro’s) THEY dont use sl’s either, which is where I got the message !

[B]but for newbs, DO NOT ATTEMPT THIS TRICK AT HOME ! [/B]

enjoy and trade well

mp

50

Doing both is easy, though. Determine where stop loss should be in terms of pips based on price action and the kind of trade you are taking (timeframe, trend/countertrend, etc), then size your position so that that many pips will equal x percentage of your account.

a stop loss does not STOP LOSS, but simply reduces your loss at some point, and OMG ---- what happens when the currency then continues back up after a minor (23 fib) retrace — things like that make one suicidal at times !

So set your stop loss past the 23 fib or nearby S/R or whatever is relevant, so that if it breaks through that point, obviously you were wrong and it’s either “get out” or “lose it all”. I don’t know; it just seems to me that doing otherwise is just “hoping” things turn around and not “knowing” they will.

51

I can not believe I am seeing this again, I simply can not.

Tymen you know I respect your teaching and methods deeply. But you really need to find a way to constructively rebuke someone. Untill then simply say “I will not comment on suchandsuch’s remarks because I simply disagree”

You were banned once on this forum and several of us fought to get you back because the depth of explanation and understanding people have with your methods. However, your insults to othermembers undermine what you are trying to put out.

You offended everyone who does not use a stopless, as was said before, simply because of your title of this thread. A more appropriate name would have been “The dangers of not using a stop loss”. But you are implying that every single trader should use one, and if they don’t then they are not to be taken seriously.

For the others, a fight can only be had if there are two sides. I am a firm believer in two wrongs do not make a right, especially in the online forumn atmosphere. So please, if oyu are insulted, report it duely and ignore the person. Let the admins do their job.

I for one suggest crawler and diddy close this thread and let it drift into the abyss. The very title is an insult to some people, and the flaming inside should not be the first things newbies trying to learn read. I suggest a more constructive thread be made WITHOUT THE FLAME, and we continue to learn and grow.

Brothers and sisters, lets get back to making MONEY!!!

52

I’ve heard people using fibo to determine tp and sl. I know a bit about fibo but never use it. Have to read more…

53

Let’s give this drama-ridden thread some substance shall we!

I’ve learned somewhere along my journey to profitable trading that Stop Losses are a tool, and not some kind of belief system. Once you look at them that way, you can have a proper discourse on [I]how to use them[/I]. As with tools in general, you usually have a favourite but understand there are other tools available. You have a favourite tool because you’ve likely put the time and experience into mastering its use.

Stops, by definition, get filled at a price that is not to your advantage. This I do not like, and you shouldn’t like it because when you’ve set a good stop loss, the only way it’ll get hit is if your trade idea was wrong, and it’s never fun to be wrong!

That Said, I still use them every trade because I’ve found the uses still outweigh the problems.

A well placed stop loss can allow you to do many things such as:

  1. Ride a juicy trend in confidence knowing that if price breaks the trend, the Stop will capture the majority of your profits. Keep what you’ve earned! It’s not really a Stop [I]Loss[/I] at this point but the method of use is the same

  2. Pre-define your maximum risk on a trade. Although you must balance your desired lot size against desired pip movement, sacrificing a decrease in one for an increase in the other. Once you have pre-defined risk, you largely remove yourself from the unlimited risk factor that scares a lot of people away from this leveraged-up-the-arse market. You can also start to review your winning trades as a ratio against your pre-defined risk (read Expectency) and start to get a very good idea of how well your system is actually performing

  3. Take you out of trades that you do not wish to be in, even when you are nowhere near your charts. This is only as useful as the time you put into it though. You really have to be sure that your stop defines a point where you want nothing to do with the trade, and you MUST take into account that spikes happen. Some make sense, and you can account for their potential occurrence beforehand, and some cannot. The freaky random ones are painful, but that is why you cannot place your stops too far away, just as you cannot place them too close.

I think the biggest problems new traders have with stops is that they
a) Make no effort to account for perfectly normal volatility in their stop placement

and
b) Do not understand that there are other, more experienced and better capitalized traders that see that “obvious” stop placement zone just as well as you do, and if they think they can set-off those stops to obtain a much better entry (on the actual move going the opposite direction) there’s no rule that says they can’t do that!

I want to stop short of actually getting into masterful stop placement because I’m still learning myself, but I do know that it’s about perfecting the balance between “too close” and “too far away” all the while taking into consideration that there are other, bigger traders out there seeking to take my money.

54

well stated akeakami - - - - -

proper use of stops, DURING NORMAL TIMES, is hard enough a balancing act, and increasingly harder these days of so many stock traders having moved into forex, which creates MUCH larger candle range than was the case only a few months ago !

Unfortunately, I am CONSTANTLY torn by listening to how newbs “LOST” a trade, only to find out that the TRADE itself was correct, just that a retrace hit their sl and knocked them out of the “GOOD” trade with a loss !

wherein lies the problem is what you call “balance”, and i have to agree completely ---- we cannot look into the minds of the bankers or the thousands of traders out there, and so we dont really know where to place that little sl point !

Since I was never smart enough to KNOW where to place that little devil, I had to figure out how NOT to use it and still say safe — along the journey, I developed the experience and knowledge of HOW and WHEN currency and stocks move, retrace and advance again, and given time, i was able to profit from it.

I myself DONT have the whole answer, only that I will NOT give my broker MY money, just because he/she is trying to scare me to death by dropping the price !

I can only state this with utter conviction and experience — IF YOU FOLLOW THE MAJOR TREND, YOU CAN NEVER LOSE ! You may put up with large drawdowns that can make you sick, but a trend is a trend, and is something even banks respect !

again, NO NEWBS ALLOWED as this process requires experience, for which there is NO substitute !

enjoy and trade well

mp

[B][I]Within the great hall at Elfinore stands a wondrous coffer, precisely four cubits square and securely latched against the outside world. Inside that repository, shut away from impertinent eyes, abides many an intriquing trading secret garnered from around the world and over the ages !

As a child, i used to watch from the darkness as the secrets were debated and annotated by the elders. No one there held a single thought of my presence – BUT I KNOW WHERE THEY HID THE KEY !! [/I][/B]

55

Hello everyone.

I am a person of faith and hope. I have faith in our community to be mature, professional (new or experienced) traders who can freely discuss their views, beliefs, ideas, and methods in a professional (and hopefully fun) manner. And I hope that any disagreements in said views, beliefs, ideas, or methods can be debated with open minds, constructively. After reading this thread, my hope and faith may be misplaced by on a couple of users, forcing me us to debate how much more strict we have to be on what users say and don’t say. This hurts me as I believe everyone has something positive to contribute at some point or another and we don’t want have to censor anyone. Sometimes that choice is forced on by others.

The issue I have on this thread is not the disagreement between Tymen and MP on the use of a “stop loss.” What do I always say? “We all have different views, beliefs, methods. What works for one trader may not work for another. We all have to find our own way to success.” The issue I have is the behavior of both Tymen and MP afterward. Instead of a constructive debate between two obviously experienced traders, we saw some inappropriate and uncalled for comments from both parties. Unacceptable.

This type of behavior calls for both to be banned, but because I think both Tymen and MP are experienced and really want to help and be positive influences on new traders I have just issued a warning to both users. And I send out an ‘unofficial’ warning out to all users who act in this manner. From this point on, any comments perceived by the BabyPips.com Team as personal attacks/flaming will result in an automatic ban. This means everyone. I am deleting the argument posts between Tymen and MP, or any irrelevant posts to the issue, and leaving up the rest of the thread. There are still great posts from other users as well.

And just to give my two pips on the thread topic on hand: “stop loss.” It is my personal belief that nothing in the markets are certain. There are a ton of ways to read the markets: high probability patterns, skilled fundamental analysis, riding trends or playing ranges, and while this can get you pretty close, this may never lead to 100% certainty of accurately forecasting the markets. I believe this is because of the ‘human’ factor in the markets. Humans are still the one’s trading and can make mistakes and often act emotionally and irrationally (the past few months are a perfect example). There may be a point where a market has gone far enough against you where your your original thesis or idea is proven incorrect, and as “risk managers” we have to act on that to protect our capital and move on to the next opportunity. You can “act” on that with automatic stop orders, mental stop levels, etc. There are more advanced techniques like scaling (averaging) in and out of trades, hedging, or using other instruments (options, futures, ETFs) to manage your risk as well. Though, start with the basics first.

So, for all the newbies reading this, remember there’s always more than one way to reach your goals and since we’re all different we have to find our own way. This means knowing yourself, learning the fundamentals of the markets and trading and understand them, practice to gain experience and refine your methods in these dynamic markets, and keep an open mind to new ideas because you never know when you’ll find that one idea, technique, or method that takes your trading to the next level.

Alright that’s it…Pipcrawler out…

56

Fair enough. Say no more.

Except on the actual subject! Akeakamai, I agree with all that - I use stops - but I’ve only just seen how it can work differently.

You can rescue a trade with either position sizing or time. Or both.
So in time, if you’re in a 5 minute trade that goes wrong, you look to see if a reverse is likely in the 15 min timeframe. Then the 1hr. Then the 4hr, then daily. If you’re trading against the daily - long-term trend, then you’ve had it.

In position sizing, you gradually increase your position as it goes against you. Martingale is the extreme of this, and is obviously unsustainable, but a gentler increase of position is feasible, so long as you’ve planned it out in advance and you’re starting your initial trades very small. Most people freak out when they think of this, but if you say took your normal position size and divided it by 10 (rough eg), that’s how you should be starting out those trades.

For either of these methods to work, it must work with positive positions too - so you must either expand the timescale you manage positive trades, or add to positions, or both. THe flip side of losing positions basically.

Neither method, nor a combination will eliminate the risk reward angle, but both do play on the inevitable fact that price doesn’t move in a straight line.

57

“This type of behavior calls for both to be banned, but because I think both Tymen and MP are experienced and really want to help and be positive influences on new traders I have just issued a warning to both users. And I send out an ‘unofficial’ warning out to all users who act in this manner. From this point on, any comments perceived by the BabyPips.com Team as personal attacks/flaming will result in an automatic ban. This means everyone. I am deleting the argument posts between Tymen and MP, or any irrelevant posts to the issue, and leaving up the rest of the thread. There are still great posts from other users as well.”

Tymen was warned once before in a fight that Tymen started. Tymen should be banned. Why are you playing favorites?

58

Playing favorites? Tymen was banned for a while for the incident he was involved in a while ago…

59

Well I’m making the assumption that you are able to find more winning trades than losing trades, I mean that’s what makes us better than some Joe off the street, no?

Assuming that, why am I to waste my time trying to fix a mistake, which I don’t mind calling a mistake (however that came about, innocent or not) when I could be finding other profitable trades with that time instead? I’m risking 1% or less of my account on each trade, it’s just not that big of a deal to just admit the trade didn’t go as planned, and move on.

We’re starting to argue against some pretty time tested rules of thumb, namely “cut losers short” and let the winners run. It’s been working for me, is there something I’m missing here?? Besides, I thought MP was talking about coming in and fixing mistakes by OTHER traders by averaging down, I do understand that but even he called them mistakes!

60

hey trihop

[I]You can rescue a trade with either position sizing or time. Or both.
So in time, if you’re in a 5 minute trade that goes wrong, you look to see if a reverse is likely in the 15 min timeframe. Then the 1hr. Then the 4hr, then daily. If you’re trading against the daily - long-term trend, then you’ve had it.[/I]

Back in my hot rod days there was an expression that you “could do anything with enough time and/or money”, and thats pretty danged close, although NOT perfect !

if you goof a DAILY trade, there is still the weekly, monthly and yearly to trade and one of those should “fix” the trade about 97% of the time, as long as you are patient enough to deal with it !

but please understand, while i tend to hold what “appear” to be bad trades, they are inevitably very HIGH timeframe trades (including the yearly chart) BECAUSE the size of the account allows me to bet on the price hitting my tp after a year or more, just like most institutions — its NOT the drawdowns that i notice, but rather a few thousand pip profit (IF that should be what is made !)

I have done nothing but present particular parts of a technique used by EVERY financial institution that is still breathing — ask them if they have tp’s SET for stocks, bonds, fx or trading cards, a year in advance !

now while a one year trade may not be on the table for MOST of the newb traders here, do understand that its extremely normal, that the market is filled with tp’s from institutions and retail traders for that timeframe, and that there is only one way to play it — you just do it, and play all the other moves as they develop.

the expression “cut your losers” is from the stock world, which DOES NOT TREND the way forex does, and therefore, considering how stocks normally move, is a good idea, but apple and google sure proved that a long term hold works just fine, thank you !

but if you understand the market, understand your trends and can visualize the whole board in front of you, many a LOSER is NOT THAT AT ALL, but simply a dip (large or small) that removes equity when your stop is hit !

GOOD traders instinctively, or thru analysis, KNOW where the price is being pushed, and my use of the LRC shows it VISUALLY so i pretty much know to the pip where something is going, but patience and the ability for your account to absorb the downside is the KEY to what I do, which is why i could [B]NEVER ASK A NEWB TO TRY THIS ![/B]

originally though, my ONLY intent was to show there was another way of trading dips (which you bloody well should short and enjoy profit from) and NOT to start a civil war, which was blown away before i even had time to make another trade !

What i do is years beyond GRADUATE school, and certainly NOT for those in KINDERGARTEN, but down the road there are a few who understand how the market works, how to be long and short at the same time, how to use dollar cost averaging to their favor, and how to tell when a trade is a mistake, a problem or simply a dip that has temporarilly gone against you and will come back,

there are few “mistakes” that will not come back to profit but the time span may simply be too much for a lot of traders, especially if dealing in microlots, but MY DEFINITION of a “mistake” is taking a trade AGAINST the major trend, because it could easily take months and months to recover from it !

enjoy and trade well

mp

[B][I]Within the great hall at Elfinore stands a wondrous coffer, precisely four cubits square and securely latched against the outside world. Inside that repository, shut away from impertinent eyes, abides many an intriquing trading secret garnered from around the world and over the ages !

As a child, i used to watch from the darkness as the secrets were debated and annotated by the elders. No one there held a single thought of my presence – BUT I KNOW WHERE THEY HID THE KEY !! [/I][/B]

62

What’s so great about trading like an institution? Last time I checked they were going bankrupt left and right. Now I see why.

63

This is even beyond debate. People is posting here their thoughts on an essay way and repeating themselves and what other people has already said. I see you have a point there about how you get to see how the price moves on a chart and how you get to realize what could have happened if only you have waited. But my point is that all that can be accomplished by experience, I guess all the newbies should give a try on S/L while they get used to analyze the price so they don’t lose their shirts.

64

I didn’t see your post there Luke, but what you’ve described is exactly my take on stop losses as well. Sometimes that subway goes the other direction a very long long time and I am very happy that I got off :smiley:

Sometimes I get out at the last stop, but there’s at least the opportunity to recover a portion of what I’ve lost, assuming I’m here to trade it. And when that happens I study the trade hard to see if I made any forseeable error in my stop placement or entry. I strive for improvement every day, every trade, and that’s why I can’t afford to make undeniable assumptions about anything the market does.

65

I have to ask: What, then, is a loser?

there are few “mistakes” that will not come back to profit but the time span may simply be too much for a lot of traders

What happens when you hit one of those few mistakes? How much is your account down at the point you finally call it a loser and close out?

I guess what I don’t get is: Presumably there is some point at which the loss is too great and you will exit the trade. Why not just set a stop at that point from the beginning? Whatever that distance at which you think price might swing before going back your way, why not set a stop there and forget it? How does not setting an actual stop help you, if the stop would be set at the same point at which you would manually bail anyway?