Time stops

[Cam]

Hi all,

I am trading a trading range breakout system (for all of one month).
Two of my trades are going very well, two are passable and one is just hovering along at $55 profit showing no signs of moving north.

I would like to pyramid into one of the winners but haven't got the capital in my account. My system doesn't have a time stop (ie bail when the thing doesn't go my way within so many bars). That's probably hurting me right now.

Who uses time based stops, and in what type of system?
Who just lets them run so long as the initial protective stop is not hit?

thanks

 

[lukeaye]

Hi Cam,

I dont have a mechanical time based stop mechanism that i use.
Timing is some what of an art, and being able to pick a move in a sp, can often be quite hard. Sometime your analysis may be right, but you still havent gotten the move you are looking for, your timing may be off a week.

To give you an example, say you were to buy a stock of a support point, it moved up, but not with enough momentum. It then may take serval days to return to support, only this time after hitting support it rockets up. If you had off sold out you would have missed the move you had anticipated.

Just because something is taking more time then you anticipate doesnt mean thats such a bad thing, providing its in context.

For example, The longer a basing period is(time), the greater the upside potential is, as it may have removed a huge amount of supply, and attracted a lot of demand, furthering the upside move.

So it is for those reasons, i tend not to use time based stops, because i realise my analysis is not nearly perfect, so i must give myself as much opportunity as possible. Putting a time on it for me, reduces my opportunity. If im chopping and changing out of stocks, then im getting hit for brokerage, interest on the stock, and possible small loses, when all along i could have been right!

Im guessing you have limited capital, and are seeing other stocks soar and wanting to be on them, feeling that you are missing something! Opportunities are around every day, dont chase other stocks down because yours isnt doing great yet.

my

 

[Cam]

Thanks for that Lukeaye. I have $30,000 (a figure negotiated with my significant other) so I have to make do with that for now (if I am profitable for 6 months I have advance permission to put in another $20,000).

You are right, the pyramiding opportunity I'm not taking is killing me.

The fact is that I know the theory of trading breakouts from ranges, but I have not back tested it because of a lack of Metastock/Tradesim coding ability. As a result I haven't tested the need for a timestop and perhaps the day to day of trading is having more of an effect on me than I ought to allow it. For the moment I am (as tech/a said in another post) forward testing a theory, so that my stops are the only bacon saver I have

Your advice about other trades and hence the big picture is appreciated. After only a month I should perhaps focus on preserving my capital (which has grown very healthily courtesy of ADI & FML) and not getting my knickers in a twist

 

[skc]

Thanks for that Lukeaye. I have $30,000 (a figure negotiated with my significant other) so I have to make do with that for now (if I am profitable for 6 months I have advance permission to put in another $20,000).

You are right, the pyramiding opportunity I'm not taking is killing me.

The fact is that I know the theory of trading breakouts from ranges, but I have not back tested it because of a lack of Metastock/Tradesim coding ability. As a result I haven't tested the need for a timestop and perhaps the day to day of trading is having more of an effect on me than I ought to allow it. For the moment I am (as tech/a said in another post) forward testing a theory, so that my stops are the only bacon saver I have

Your advice about other trades and hence the big picture is appreciated. After only a month I should perhaps focus on preserving my capital (which has grown very healthily courtesy of ADI & FML) and not getting my knickers in a twist

There lies your problem!!

Seriously, your problem is not whether you need a time stop, but that you are capital constrained.

So the answer your seek is not one re time stop, but a case by case assessment of whether trade A or trade B will provide a better return on capital.

 

[Cam]

How do you go about that skc?

I bought both breakouts but didn't have a view as to whether one would be likely to do better than the other or others. I loaded into 5 or 6 positions on 2% risk with the intention of cutting the losers and looking for other opportunities for funds invested in the losers. The losers just haven't lost enough to get cut.

One way would be to cut my risk to 1% and spread my capital a bit more, and be more likely to have money spare when pyramiding opportunities arise, and make sure I do a good job of the pyramiding when I do it (next time I do it, it will be my first shot .

Do you have a way of assessing which is the better return on risk (other than taking the trades where the entry lets you set a tight (though logical) stop)?

Thanks in advance.

 

[nomore4s]

Hi Cam,

What you are experiencing is opportunity cost. One of the problems in trading is that there are normally more opportunities around then we can take advantage of - no matter how much capital you have access too.

Identifying the best opportunities is very difficult and something no-one ever gets 100% right. To me one of the hardest things about trading is the missed opportunities, stocks I had on my watchlist but for one reason or another I missed getting on it when it took off - I can happily take losses but when I see a stock that I had been watching set up take off, it hurts.

I do use time stops on certain set ups as I have found if the trade doesn't move quickly in my favour it normally fails - once you are in a trade you don't have to wait around for your full stop to be hit if the pattern starts to fail earlier. This is where understanding the patterns you are trading and how they generally react helps, do the breakouts you trade normally retrace or just shoot straight up, where are the resistance levels and how do you expect it to act around those levels, if the pattern starts to stall after the breakout what are the chances of a reversal or false breakout, does tightening stops or using a time stop help your trading if these patterns stall?

 

[lukeaye]

Cam,

If your capital in restricting you may consider CFD trading. If you use the same money management, risking 2% at your stops, you have less outlay because of your leverage. Therefore you can enter 5 - 10 times as many positions.

Its very important to understand the risks of CFDs though. You cant say wow, i have 30,000 i can use that as 300,000 and my returns will be great! Its important to understand that it is a tool which can allow you to spread your capital more effectively. That DOES NOT mean you can risk more. Thats generally what gets people in trouble.

For me time based stops, are just not effective. I risk about $250 per trade on my CFD account, and once you take out brokerage and spread losses, it just isnt cost effective to exit a trade based on time. I have to trust my analysis and give the position its opportunity to do what it needs to do, and if im wrong im wrong, but dont cut your potential winners short.

As nomore4s said, you will learn how to identify how patterns play out, and what "should" happen, but this is not an exact science.

 

[Cam]

Thanks Lukeaye and Nomore4s.

I will think about how to address the capital problem and based on what I know about the trading range breakout style of trading, at least one of the patterns has probably failed so I might cut that one.

I will need to see whether I can get CFDs from someone for the low priced stocks, because that's where I am trading at the moment.

Thanks very much for your suggestions.

 

[nomore4s]

Thanks Lukeaye and Nomore4s.

I will think about how to address the capital problem and based on what I know about the trading range breakout style of trading, at least one of the patterns has probably failed so I might cut that one.

I will need to see whether I can get CFDs from someone for the low priced stocks, because that's where I am trading at the moment.

Thanks very much for your suggestions.

Using margin is an option as suggested but just be aware of the risks - especially portfolio heat. Also holding costs in CFD's can mount very quickly.

If you are trading low priced stocks it could be best to look at using a time based stop as I have found the best trades in the lower priced stocks tend to move very quickly and then can also retrace very sharply as well.
Penny stocks can also break out and then range for awhile - take a look at LKO.

In the end it comes down to a trading plan you are happy with and comfortable using. Good luck.

 

[nomore4s]

Cam,
Therefore you can enter 5 - 10 times as many positions.

That DOES NOT mean you can risk more.

By entering 5-10 times more positions your are risking more.

For me time based stops, are just not effective. I risk about $250 per trade on my CFD account, and once you take out brokerage and spread losses, it just isnt cost effective to exit a trade based on time.

Brokerage drag will be alot higher on a $10,000 account than a $30,000 account and obviously a $50,000 account will reduce that drag even further.

 

[lukeaye]

By entering 5-10 times more positions your are risking more.

No i didnt mean it like that. What i meant was, just because you have more leverage does not mean you should risk more on a single trade.

 

[kam75]

Hi all,

I am trading a trading range breakout system (for all of one month).
Two of my trades are going very well, two are passable and one is just hovering along at $55 profit showing no signs of moving north.

I would like to pyramid into one of the winners but haven't got the capital in my account. My system doesn't have a time stop (ie bail when the thing doesn't go my way within so many bars). That's probably hurting me right now.

Who uses time based stops, and in what type of system?
Who just lets them run so long as the initial protective stop is not hit?

thanks

Using a timestop is all important. I trade resistance and chart pattern breakouts and always have a time contingency as a part of my trading plan. The important thing is to prefigure how long you intend to be in the trade before you get in. For example, when I trade specs, I'll usually give the trade a few days to work out and if I'm not ahead, I'll dump it. But it goes back to the old rule "Cut your losses short". Maybe that rule should be called 'Dump your losses quick'. Then you can ad to your winning position to maximise profits in a trade.

 

[lukeaye]

Using a timestop is all important. I trade resistance and chart pattern breakouts and always have a time contingency as a part of my trading plan. The important thing is to prefigure how long you intend to be in the trade before you get in. For example, when I trade specs, I'll usually give the trade a few days to work out and if I'm not ahead, I'll dump it. But it goes back to the old rule "Cut your losses short". Maybe that rule should be called 'Dump your losses quick'. Then you can ad to your winning position to maximise profits in a trade.

But do you not find, that by doing this, you;

(a) increase brokerage costs by exiting entering more frequently
(b) miss profitable runs as you mistime your entry (which always happens)
(c) accept more losses more frequently?

 

[nomore4s]

But do you not find, that by doing this, you;

(a) increase brokerage costs by exiting entering more frequently
(b) miss profitable runs as you mistime your entry (which always happens)
(c) accept more losses more frequently?

Lukeaye,

It depends on your type of trading and the patterns you're trading.

For some trades I've found if the trade isn't moving in my favour after X amount of bars tightening the stop up or exiting the trade straight away actually saves me money because while taking a loss I'm not taking a full R loss.

I can always re-enter if the trade moves in my favour after exiting but I've found a higher % of the time it has moved in the opposite direction and taken out my original stop anyway.

Brokerage is a cost of business and to my account is negligible - $6-$10 each way is not an issue - I lose far more by letting my full stop be taken out when the reason for me entering the trade has been invalidated by the stock price stalling.
There is also an opportunity cost as that money could be in a stock that is moving and actually making me money.

But there are certain patterns & set ups I trade that I don't apply a time stop and am happy to just let the trade develop.

Do what works for you.

 

[lukeaye]

Like anything,

I guess you need to colloberate data on what your expectancy is using that method. For me though, a time stop in trading australian stocks is just not beneficial for me. I trade using only a $200 risk, so brokerage after 3 or 4 quick exits can really hurt.

Maybe trading FX is more usefull for time stops?

I don't know i just can't bring myself to use a time stop, unless im strapped for capital, and i feel i have a higher probabilty of capitalising on another position. The evidence has to be very convincing though.

 

[Wysiwyg]

Maybe trading FX is more usefull for time stops?

I was going to mention my experience on numerous occasions where the price trends sideways within a tight range. Strangely the price went against me more often than not. What length of time to bail out is the unknown, but somehow relative to the time frame being traded I propose. Like on a 5 min. chart exit after 10 times that. 50 mins. Just a thought. Also discretionary exit maybe on feel.