Cutting your losses is liberating

[sptrawler]

The other thing I have found about cutting away a loss is, after a period of mourning and anger, you can actually look at the stock with an open mind.
Rather than looking at it and seeing that number next to it, that you really wish wasn't there, once it has been removed from your holding it just becomes another share.
I wish.
I think I need counselling over AMP.

 

[Smurf1976]

Cost me a fair bit to realise that I'd be better off making decisions end of day when it comes to deciding if the stock has actually reversed to the down side or had an intra-day low and back to normal.

Approaches will vary between individuals but best thing I've done thus far is changing to a weekly (weekend) review of the portfolio.

Only reason I look in detail at anything during the week is if it moves more than 10% or if I've decided the previous weekend to buy / sell it and am carrying out that plan.

 

[frugal.rock]

So, in keeping with the thread, I dumped some losers today. Should have done it a long time ago, weeks and months even.
One of the stocks, generally sat around 35% lower than my purchase price.
I watched it ramp up on several occasions to my purchase price with the last time being last Thursday. I hung on waiting and hoping for that profit. Foolish. I dumped today, yes, at a 35% loss, around $ 600 in the hole after holding for around 5 months.
I have FOMO after selling 2 stocks a couple of months ago. They were purchased with a minimum 6 month hold plan in mind. After watching them retreat to losses up to %20 not long after purchase, I was antsy to get out, despite my plan. I hung on and managed to get out with small profits on each, somewhere around 12% averaged.
I then watched both stocks continue to go up after a fortnight or so, one 100%(WEL) the other 200%(RXL).
It damages the psyche.
I did my research, planned my trade, and then ignored the plan. Der.
Plan your trade and trade your plan.
I need to reset as my portfolio has suffered from too much 'mingling with the herd'.
I'm with you Smurf, trades are best planned with the market closed.
For me, it stops those irrational impulsive trades that can lead to good profits short term, but lull's one into a false and dangerous security.
Stop losses are now integral in my planning, as is patience on the timing. There's plenty of fish in the sea, or is there?.. My thoughts of the Newfoundland Cod, mmmm cod.
F.Rock

 

[barney]

Just bumping this thread after @fergee "reminded" me of it … thanks Fergee

We are now into the New Year so perhaps a good time to reflect on any "bad habits" which might need addressing

 

[fergee]

Just bumping this thread after @fergee "reminded" me of it … thanks Fergee

We are now into the New Year so perhaps a good time to reflect on any "bad habits" which might need addressing

Haha all good my man it was an interesting read.

I have been guilty of over trading and its something I will continue to work on going forward into 2020 and beyond.

 

[frugal.rock]

Any bad habits?
In my case, Many bad habits.
Timely reminder though!
Cheers

 

[Linus van Pelt]

I was put onto this thread by a friend and have read it "cover to cover".

One thing I was planning to do in all my future buys is put an ISL order into the market when I open the trade. However, in this thread I read some mixed reviews on that strategy.

I suppose this approach can't be properly backtested. For example, say you have a weekly trading system and your ISL triggers on a Wednesday. That could never be backtested. Ok, perhaps it could with some "fancy" coding: a daily system that only trades on a particular day but triggers stops daily, with the GTFO stop triggered on the low. But even that doesn't account for the fact you probably only have EOD data feed.

But is there anything inherently wrong with setting a INITIAL stop loss, based on your buy price, into the market? You hope your stock goes up, and the trailing stop loss would prevent the ISL/GTFO loss to ever trigger. But if it tanks say 10% (or whatever your risk planning allows) straight away, then you made a bad purchase and you're out. If you find your in-the-market stops often get you out of eventual winners, is it possible your ISL is too tight?

I really want to implement proper risk management strategy so my "dog" stocks are shot as puppies (that image is for you @frugal.rock along with your festering cankers thread!).

In summary, what are your thoughts on entering an in-market, good-til-cancelled ISL/GTFO stop loss for every buy?

Edit: I did find this related post: https://www.aussiestockforums.com/threads/stop-losses-when-to-use.33459/.
Still, if you have anything to add re: my post above, please do so.

 

[peter2]

A stop loss prevents any one position from losing more than the trader can handle and when used throughout a portfolio prevents the portfolio from losing more than the trader can handle. There is a cost with using stop losses in that they reduce win % and total profit.

There is nothing inherently wrong with setting an exit stop in the market with every trade if it's an essential part of your systems edge. Most traders don't know if their use of SLs helps or hinders their edge.

Yes, most people place their iSL too close and become frustrated by selling too often.

The stop loss must be placed at a level that compliments your trading strategy. If you're a pattern trader then the SL is placed where the pattern fails. If you're a BO trader then place the SL at a level that indicates the BO has failed to go on with it.

Initial SL's must be placed outside the normal price noise for the time frame you're trading.

SL's help an active trader produce a profitable distribution of results (winners larger than losers).

 

[Austwide]

The main problem I had with setting stop losses is many times the trade dips and then recovers the same day.
I now only use EOD and sell the next day.

This method leaves me being the weak link in the chain due to sudden large drops, being too busy to watch closely and of course occasionally lack of discipline.

My trading plan does not fit all market areas. Species may need their own plan?

@peter2
Initial SL's must be placed outside the normal price noise for the time frame you're trading.

I set my SL tight maybe too tight and sold a few too early.

I am thinking of setting a very wide SL to cover sudden large drops and then managing a tighter SL.

 

[rnr]

The main problem I had with setting stop losses is many times the trade dips and then recovers the same day.
I now only use EOD and sell the next day.

This method leaves me being the weak link in the chain due to sudden large drops, being too busy to watch closely and of course occasionally lack of discipline.

My trading plan does not fit all market areas. Species may need their own plan?

@peter2
Initial SL's must be placed outside the normal price noise for the time frame you're trading.

I set my SL tight maybe too tight and sold a few too early.

I am thinking of setting a very wide SL to cover sudden large drops and then managing a tighter SL.

Hi @Austwide,

Are you talking about setting your iSL very wide?

Cheers, Rob

 

[aus_trader]

Just to add to discussion, I have not used market orders for years. If the stock closes below a price level that I am not comfortable with, I'll manually sell the next day.

 

[Linus van Pelt]

Just to add to discussion, I have not used market orders for years. If the stock closes below a price level that I am not comfortable with, I'll manually sell the next day.

Yeah I'm reading a lot of Dr. Bandy right now. In his mean reversion book he says that stop losses (not just in the market) are detrimental to overall return. Then he dares you to test by setting a very low stop that would never be hit, backtest, move up, then rinse and repeat, then compare results. He asserts that you have worse results with a stop loss than none at all.

I get that mean reversion is a different trading style from trend following, breakout, etc., with shorter positions. I haven't gotten to those other books yet ?

And I get that an intraday low can be far lower than the EOD close price.

Dr. Bandy talks about "market on close" orders, with the close price as the buy price, and trade delays = 0. I don't know if that's just a terminology issue, and it really means "5 min before market is about to close" order, and the close price being "the current price 5 min before the market is about to close"? I guess I need to Google what a MOC order is.

Anyway, as to @aus_trader 's comments above, while it would be more work to monitor the market nightly rather than placing the stop loss order in the market when you place your buy, manually monitoring it would prevent that intraday low from stopping you out of the position.

So I'm still confused on the best approach re: risk management and stop loss orders. Except I know you must have a stop loss target BEFORE you place the buy. The confusion is in the best way to implement that.

 

[Jack Aubrey]

Yeah I'm reading a lot of Dr. Bandy right now. In his mean reversion book he says that stop losses (not just in the market) are detrimental to overall return. Then he dares you to test by setting a very low stop that would never be hit, backtest, move up, then rinse and repeat, then compare results. He asserts that you have worse results with a stop loss than none at all.

I get that mean reversion is a different trading style from trend following, breakout, etc., with shorter positions. I haven't gotten to those other books yet ?

And I get that an intraday low can be far lower than the EOD close price.

Dr. Bandy talks about "market on close" orders, with the close price as the buy price, and trade delays = 0. I don't know if that's just a terminology issue, and it really means "5 min before market is about to close" order, and the close price being "the current price 5 min before the market is about to close"? I guess I need to Google what a MOC order is.

Anyway, as to @aus_trader 's comments above, while it would be more work to monitor the market nightly rather than placing the stop loss order in the market when you place your buy, manually monitoring it would prevent that intraday low from stopping you out of the position.

So I'm still confused on the best approach re: risk management and stop loss orders. Except I know you must have a stop loss target BEFORE you place the buy. The confusion is in the best way to implement that.

I don't have enough trades under my belt to make a statistically valid comment, but I did go back and retest seven losing trades (over a year) where I was kicked out by an auto stop-loss. I lost an average of 30% on those trades. If I had left them all to run until last friday, I would have made an average of over +100% with only one loss out of the seven.

Of four winning trades, I was kicked out of two due to trailing stops. Three of those went on to (slightly) higher gains and the other (ISX) was suspended a week after I was turfed out and hasn't been reinstated (ie. I would have lost 100%).

This may or may not be useful analysis because I was able to reinvest my (depleted) capital from those losing trades into a few winners (still in market) and am well up on the year overall.

Note: all my trades were at the spec end of the market.

 

[Austwide]

@Linus van Pelt I don't set a SL with my broker currently as above, just a paper SL

The very wide SL is being considered to protect against sudden and severe market falls.
My iSL and trailing SL are at the same percentage (and then a fine adjustment up or down, to below support)
The percentage varies depending on volatility and amount invested.

If the SL can not be set close to support, I should (don't always) avoid the purchase.

The iSL for me is just below a support but only on paper as I usually watch a new purchase closely.

 

[Linus van Pelt]

If I had left them all to run until last friday

Thanks Jack.

By last Friday I assume you mean 27Nov, not "the" last Friday after your stop loss hit. Depending on when you bought, that could be a LOT of time to recover.

This is all great in hindsight. But at the time of the stop, you didn't know if the stock would have continued downward, so the stop could have saved you from big losses. After all, you had those orders in the market for a reason. I assume it was to prevent a loss greater than you had tolerance for in your risk management.

If you don't mind doing a tiny bit of work, could you look at your charts for those 7 positions that were sold, and let me know if they sold due to an intraday low or due to a close below the stop? IOW, if you had manually executed that stop at EOD after market close?

Note the difference between the two example stops in my screenshot

 

[tech/a]

Yeh ---I did this with a wife once ---very liberating.--

The chart snippet above what is its code?

 

[Linus van Pelt]

Yeh ---I did this with a wife once ---very liberating.--

I bet that stop loss saved you heaps on that one ticker but caused damage elsewhere across your portfolio

 

[tech/a]

I bet that stop loss saved you heaps on that one ticker but caused damage elsewhere across your portfolio

Liberating not without loss!---only now looking back can I feel liberated.
At the time not unlike trading --the feeling was of acceptance---this isn't going to get any better.

 

[Joe90]

Dr. Bandy talks about "market on close" orders, with the close price as the buy price, and trade delays = 0. I don't know if that's just a terminology issue, and it really means "5 min before market is about to close" order, and the close price being "the current price 5 min before the market is about to close"? I guess I need to Google what a MOC order is.

My understanding, "market on close" is a conditional order, you place your order in the market and the exchange executes at the close of the day. Actual timing I'm not sure of, some stock markets trade after close for 10-15mins.

Trade delays = 0, he is most likely making an indirect reference to AmiBroker where delay=0 means execute same day (i.e. no delay), delay=1 means execute next day.

The wise can correct me if I'm wrong please.

 

[tech/a]

Problem with that is that you can’t be sure some conditions will be met on close
Eg if a price breaks above a certain level
Or above an indicator level

you’ll get amazingly false results if you set to zero on most systems you can’t look ahead until you can see ahead

a system will record everything that works but none that don’t it won’t see them