[Octavian]

I keep reading of scenarios where someone has lost say $8000 on a trade gone bad or they ve got too greedy and i m puzzled as to why they just didnt use a simple stop to lock in profits?

Also why do people use mental stops rather than ones set with a broker ?

Stops seem to be the best defence a trader has at protecting their principal, nothing to lose yet plenty to gain

[wrbtrader]

Originally Posted by Octavian »

I keep reading of scenarios where someone has lost say $8000 on a trade gone bad or they ve got too greedy and i m puzzled as to why they just didnt use a simple stop to lock in profits?

Also why do people use mental stops rather than ones set with a broker ?

Stops seem to be the best defence a trader has at protecting their principal, nothing to lose yet plenty to gain

Don't worry too much about why some traders take losses beyond their trading plan as the result of not using a stop of any kind.

In fact, you should encourage it more because these traders are your competition and you want them to be on the other side of your trades.

[Obsidian]

Greed and taking huge risks are proven ways to destroy your account...Some people know this fact and act accordingly (use stops or other ways to manage risk), some people just ignore it and learn the hard way...

People don't use stops because they are afraid of stop hunting? hmm maybe...

But there are times that even stops can't protect you...I had a friend whose account currency was eur (he believed u.s. economy will collapse soon), then he thought chf was a better choice to park his cash since the eurozone had many problems. A few weeks later SNB set chf exchange rate floor at 1.20...

[SIUYA]

Originally Posted by Octavian »

I keep reading of scenarios where someone has lost say $8000 on a trade gone bad or they ve got too greedy and i m puzzled as to why they just didnt use a simple stop to lock in profits?

Also why do people use mental stops rather than ones set with a broker ?

Stops seem to be the best defence a trader has at protecting their principal, nothing to lose yet plenty to gain

While stops are particularly useful and highly recommended, and there have been a few occasions where I not used them and regretted that decision, however you seem to be talking more about a trailing stop - "to lock in profits" ---- very different to an initial stop - which is highly, highly recommended.
However as food for thought, there have been plenty of times whereby having a trailing stop can cause you not to stick to your original plan as you get taken out at a small profit and miss the larger one.
If your plan is to build positions the aim is to get as many on as possible - and not get taken out by trailing stops hence the reason why sometimes they might not be used.
Additionally some traders like to just give an opportunity more room than a predetermined ATR stop (as an example) preferring other setups to occur.
(I used to have some examples showing this and it completely changes the profitability of certain systems - using the same entries, but a trailing stop or not - I will try and dig them up if I have time - I think they are on an old computer though as I recently moved countries)

If you can use mental stops thats fine - many people cant pull the trigger and keep hoping when it turns they will get out hence the need for auto stops. However mental stops are fine, if you stick to them, they are often used when you might have a get me out worse case stop, but you allow a stop a little more room as the price action might seem a little choppy but at the same time you dont want to miss a trade IF you happen to get the timing right and your view of potential chop is incorrect
and yes often mental stops will protect you better than an automatic stop, especially when using limit stops that might not get executed.
As per everything - there are many ways to skin a cat and it depends on matching the best entries with the exits and then matching you with the system and you view of how the market works and how you can best make money from it..

(As an aside so as not to distract too much......
I think there is a big difference between auto trading and levels of discretionary trading that gets missed a lot here. To often advice is given that applies to either -
- fully automated trading - which can be back tested and modeled and shown exactly where this occur - here you can work out which exits/entires ideally fit best together
- historical analysis of trades - either auto traded or discretionary traded using some fairly rigid rules
- discretionary trading using loose rules - next to impossible to test, and can only be analysed using the above methods as a best guess.Usually unable to be taught, or analysed and only really gained through experience.

IMHO Its this middle one that offers the most grey areas when it comes to seemingly offering answers on forums such as this - and hence readers need to determine where the poster may be coming from.)

[MightyMouse]

Originally Posted by Obsidian »

Greed and taking huge risks are proven ways to destroy your account...Some people know this fact and act accordingly (use stops or other ways to manage risk), some people just ignore it and learn the hard way...

People don't use stops because they are afraid of stop hunting? hmm maybe...

But there are times that even stops can't protect you...I had a friend whose account currency was eur (he believed u.s. economy will collapse soon), then he thought chf was a better choice to park his cash since the eurozone had many problems. A few weeks later SNB set chf exchange rate floor at 1.20...

Greed and taking huge risks are also the way that most extremely wealthy people got that way. Everyone thinks thier risk taking is calculated. It is brilliance if it works and an act of greed if it doesn't.

[BlueHorseshoe]

Originally Posted by Octavian »

I keep reading of scenarios where someone has lost say $8000 on a trade gone bad or they ve got too greedy and i m puzzled as to why they just didnt use a simple stop to lock in profits?

Also why do people use mental stops rather than ones set with a broker ?

Stops seem to be the best defence a trader has at protecting their principal, nothing to lose yet plenty to gain

Hi Octavian,

It is used to be common for larger traders to use mental stops because they didn't want a stop order in the market. If a stop order was known to the floor then locals might run it.

Nowadays, such large traders are likely to employ sophisticated algorithmic methods enabling them to hold a stop with little chance of detection (iceberg orders etc). They are also able to 'spread' risk very rapidly using a highly correlated market.

Another reason why traders don't use stop losses is because they do not have a fixed exit in mind from the time that they enter a position. I trade in this way, using a dynamic stop loss derived from an indicator that adapts to market conditions. This does not mean that I will allow a position to move indefintely against me and wipe out my account, but that my system decides on an appropriate time and place to exit the market.

Volatility based stops derived from Standard Deviation and Average True Range are quite common; these are a good example of a dynamic stop that can also be placed in the market as a hard stop and then updated as price changes develop. Often, such a stop will only be moved in favour of the trade, so that it becomes a trailing stop.

I'm afraid that the 'nothing to lose yet plenty to gain' principle doesn't quite apply. The performance of every strategy that I have ever seen has been negatively impacted upon by the inclusion of stops losses. So it becomes more a case of a personal decision about how you control risk, and the stop-loss that you use should be developed accordingly.

I hope that answer is helpful in your trading.

[Obsidian]

Originally Posted by MightyMouse »

Greed and taking huge risks are also the way that most extremely wealthy people got that way.

You are absolutely right.

Originally Posted by MightyMouse »

Everyone thinks thier risk taking is calculated. It is brilliance if it works and an act of greed if it doesn't.

Thinking does not guarantee anything

[Predictor]

What "seems" to be true often isn't the case.. I've tested dozens of systems and most systems that use price stops perform worse. In fact, taking needless stop losses is the fastest way to ruin an account.

Many professionals do not use stops or at least tight stops. They control risk using other methods. Let me say MOST professionals don't use hard stops.

This is part of the benefit in learning to read the order flow is that a skilled trader in futures market can see the order flow starting to change and use a limit order to get out at a better price (or exit outright) then using a stop. Of course, there are those times when the market doesn't retrace and one has to take a larger loss.

Again and we're talking futures here.. in stocks market can gap and take out stops. Among skilled traders.. most of these huge losses are the result of a move that occurs so fast/unexpected that taking a stop loss no longer makes sense or one is psychologically unable to respond. And that is why I use catastrophic stops.

These mental "hiccups" can happen to the best. Now.. as you seem to suggest, when a trade goes in favor and works out great can make one more reluctant one from taking a loss because they don't incorporate the new information. This can happen too.

Originally Posted by Octavian »

I keep reading of scenarios where someone has lost say $8000 on a trade gone bad or they ve got too greedy and i m puzzled as to why they just didnt use a simple stop to lock in profits?

Also why do people use mental stops rather than ones set with a broker ?

Stops seem to be the best defence a trader has at protecting their principal, nothing to lose yet plenty to gain