What analysis do you use for trading?

[$20shoes]

psychology of the b/e trader - "I'm probably wrong...I'm probably wrong...gotta minimise the risk as soon as i can".


psychology of the "set stop and forget" - "I'm probably right...I'm probably right...gotta minimise that risk as soon as i can".

 

[tech/a]

psychology of the b/e trader - "I'm probably wrong...I'm probably wrong...gotta minimise the risk as soon as i can".

There seems to be a misconception about when a stop is raised to B/E bought about possibly by my mentioning that I look at this from 1R and on.
I agree there are times when my stop moves to B/E then higher and turns into a trailing stop.Shorter timeframes.
Longer timeframes the B/E stop can be set after a trade is well on its way witha wider stop initially in place.Eventually the protective stops are not required and managing the exit becomes more the issue.

So I cant agree with the above analogy.

psychology of the "set stop and forget" - "I'm probably right...I'm probably right...gotta minimise that risk as soon as i can".

Short term stops are generally closer than longterm.
Wider initial stops do tend to remain valid longer My stats showed (Ive tossed them out was many years ago) that the sweet spot was 8-12% of the initial price as a stop on the ASX 200/300
Below 8% tended to bring a high risk of being stopped.
Above 12% gave rise to finding yourself often in a trade which traded within the initial buy and the stop.So opportunirty cost became an issue.

So I cant agree with the second statement either.

 

[tech/a]

Sinner.
As for a free trade in stocks if I buy say 5000 BHP at $30 and they rise to $50 I sell 3000 and then let the rest run with or without a stop then I have a free trade---from the point of risking only my open profit.To lose it all it has to be de listed. I can go on and trade whatever else I like and do this infinitum.


Dont know how youd do it with futures.

 

[$20shoes]

Just being facetious tech.

But there is a some method behind my misplaced humour.

If you are moving your stops to breakeven, for whatever reason and in whatever timeframe, surely your thinking is that you cannot discount the market moving against you. You may have timed your entry nicely; it has some legs and now, if it shows signs of fading, the original assumptions you held upon your entry no longer hold creedence: the market has moved on since you made your original entry so why is your original stop still appropriate? It's just a mark on a chart. You hope your trade maintains legs for a good R win, but if it doesn't you're covered. You're maximising your R and your opportunities. Aren't we just talking about trailing the market anyway albeit in a more aggressive manner? You're trading like the market can't be trusted - which is good.

If you set and forget aren't you saying you'll forgo some opportunity and instead will maximise your time in one trade in the hope of that you can ride some swings and eventually ride them out? That is, you believe in your original stop like it still has some relevance, 5 bars, 10 bars , 50 bars later. Whereas the breakeven trader feels that his stop holds no currency in the market, you respect your stop placement and hope the market does to. The market may have done all manner of things in the meantime - shot up 20%, ranged for a bit, collapsed to a few ticks of your stop; and who knows what it will do next and do you really care anyway?

 

[$20shoes]

Interesting results in this paper. I personally couldn't handle the equity swings which would surely ensue - even if I implicitly trust in my overall system's positive expectancy.

Abstract

A great many traders use stop-loss rules in their everyday trading. In addition, during periods of high volatility, many traders attempt to protect their downside by moving their stops closer to the price action. However, there appears to be little real justification for doing this. There is a shortage of evidence that demonstrates that stops are actually providing the benefits that traders believe they are. This paper is an empirical study of the use of stops within a defined trading strategy. The methodology used within this paper can easily be ported to any individual traders’ strategy. In the specific case studied in this paper, the results suggest that initial stops degrade long-term portfolio performance. Suggested Citation

Bruce Vanstone. "Do initial stop-losses stop losses?" Information Technology papers (2008).
Available at: http://works.bepress.com/bruce_vanstone/15

 

[tech/a]

Interesting results in this paper. I personally couldn't handle the equity swings which would surely ensue - even if I implicitly trust in my overall system's positive expectancy.

Abstract

A great many traders use stop-loss rules in their everyday trading. In addition, during periods of high volatility, many traders attempt to protect their downside by moving their stops closer to the price action. However, there appears to be little real justification for doing this. There is a shortage of evidence that demonstrates that stops are actually providing the benefits that traders believe they are. This paper is an empirical study of the use of stops within a defined trading strategy. The methodology used within this paper can easily be ported to any individual traders’ strategy. In the specific case studied in this paper, the results suggest that initial stops degrade long-term portfolio performance. Suggested Citation

Bruce Vanstone. "Do initial stop-losses stop losses?" Information Technology papers (2008).
Available at: http://works.bepress.com/bruce_vanstone/15

Would help if he ran a test on a system which was profitable in the first place.

 

[brty]

$20shoes,

Ahh, thanks for bringing stops back into the limelight. In an earlier discussion in this thread I was heading in this direction when we got sidelined with randomness, or was that random??

I trade without an initial stoploss, or should I say anything that is within cooee of the action. If something goes drastically against me with an initial move, I will plan my exit based on what the market will give.

For example a recent trade that went wrong was a long on AJL at $3.20. This had been in uptrend and then suffered a sideways pattern, then pullback of something like 14 days in a row, meandering back to support, on high volume, on the day I bought. As soon as my trade was executed, the stock went into a trading halt, a couple of days later they announced a suspension of dividend, and the stock opened something like 30 cents lower, then ran another 20 cents on thin volume.
Having a stop in place, would have triggered an immediate large loss of over 10%, (which is why those who think their 2.5 cent stoploss is going to save them, really don't understand how markets work).
My game plan was to purchase more stock into the panic, however as I was not on the computer at the time, this did not occur. After the panic had subsided the stock retraced its ground and a couple of days later I exited at $3.18. The price went higher than $3.20 a few times but there was no liquidity there. I lost only .6% plus brokerage rather than 10-15%.

My thoughts about initial stoplosses are that they are not that important provided you have a plan, which includes what you will do in a variety of market actions. However this probably depends on how you are trading, ie bottom picking, breakouts or range-trading and the probability of winning or sideways action after you have entered.

Make no mistake about what I am saying about getting out of a trade when wrong, just differences on how to do it. I also would normally,( I can't never), have more than about 10% in any one stock, so that the ultimate disaster never costs too much.

brty

 

[Wysiwyg]

Bruce Vanstone. "Do initial stop-losses stop losses?" Information Technology papers (2008).

A large proportion of stop outs with this strategy ....

The following results form the benchmark for comparison. They are created by the following rules:
a) buy when price closes above a 50 day EMA and stock was a constituent of the ASX200
b) sell when price closes below a 50 day EMA

is because price frequently pops above the EMA 50 for a few bars and then drops below again. I would say even more so on a sideways and down trend. *Hence 15000 + trades over the time tested.

1) Exit strategy fatally flawed
2) Trend selection non-existent (the killer)

 

[Synergy]

I think it depends on what you're trading and the volatility involved. I trade volatile stocks where there is a lot of intra day price movement. Because of this I don't trade with on market stops. If my initial stop is broken intra day, I'll then sell on open the next day. I've found this works best for what i'm doing.