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Octavian

Why Do Some People Not Place Stops?

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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

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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. :rofl:

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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...

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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.)

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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.

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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.

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

You are absolutely right.

 

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 ;)

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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.

 

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

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Some traders use a max loss limit set up with their broker instead of a stop order. This way they limit their risk to a percentage or a portion of their capital and not worry about having to maintain a stop during a trade and to prevent being wiped out during a unforeseen failure (data feed, computer, power failure, internet).

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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

 

People are hesitant of taking stop losses as they think if they if they will take a stop loss they will realize their losses and floating losses are not the actual losses and this is not because of their greed but the emotional attachment with the markets and thinking of the markets will always move their own way ;-)

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Some traders use a max loss limit set up with their broker instead of a stop order. This way they limit their risk to a percentage or a portion of their capital and not worry about having to maintain a stop during a trade and to prevent being wiped out during a unforeseen failure (data feed, computer, power failure, internet).

 

This is a good tip for those trading futures.

 

Note that if you're in the uk and using financial spreadbetting, you will struggle to get a spreadbetting firm to accept an instruction to do this. Yes, they'll give you margin calls, but they'll often let your account run into negative equity if they think that you can afford to pay up. Many do, of course, offer guaranteed stops for a premium, which will do the same thing, or even allow perfect hedging, allowing you to be simultaneously both long and short a market.

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setting stop levels is as important as picking entry and exit points for the beginners...the tool supposed to prevent you from big losses, may stop you from having profitable trades...

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setting stop levels is as important as picking entry and exit points for the beginners...the tool supposed to prevent you from big losses, may stop you from having profitable trades...

 

I have traded in Hangseng Index with Selling Stop . Don't have an idea about other products but strategy to trade with selling stop always pay me.

 

Selling Stop is not a bad idea but Beginners never understand selling stop. The best order to trade with is If Done order but there are only few brokers which offer If Done Orders and it is best match for the beginners.

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I believe that my current experience in trading doesn't allow me to ignore S/L.

 

I've seen quite a lot of examples when people put orders without any stops and the next thing happening was upward/downward spike that eated all of the money.

 

Maybe sometimes I'll get into locks or other advanced techniques but for now s/l is the best way to limit my risk.

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I don't use traditional stop losses, though i had to reply, since i came on to ask a question regarding a trading problem i was having, and may have found the answer, then found this thread

 

At the very least, the value of maintaining a stoploss is to keep you -in- trades that you may want to be in for a longer term, but in the shorter term are going against you. As in, your system gets you in, and just as you do, the price consolidates. Without a developed stop loss method.. it would be too easy to exit these trades incorrectly, at least in my experience

 

I have been reading a few articles recently about how stop losses can be bad though... in the end, i think subjectively, leaving a trade alone like that, to actually rely on mechanical stop losses, is a bad idea in general. These are financial markets after all. Natural disasters happen, unexpected economic data comes out etc..:cool:

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... ...I have been reading a few articles recently about how stop losses can be bad though... in the end, i think subjectively, leaving a trade alone like that, to actually rely on mechanical stop losses, is a bad idea in general. These are financial markets after all. Natural disasters happen, unexpected economic data comes out etc..:cool:

 

If you follow the shenanigans of the high frequency trading firms you can see that stop losses can be very bad for you if you trade US stocks. Getting more and more common to see whipsaws due to rogue/stupid algos that take out stops and rebound to pre-whipsaw prices.

 

You can see lots of examples on premarketinfo.com where they follow (and hate) these guys.

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You can use in-house stops or a equity-based stop loss (or take profit) that is monitored in-house by a script/expert advisor/etc. By keeping you stops off the exchange or off the broker server (forex), there is less risk of manipulation. The only real risk is that your platform/datafeed fails, in which you would have to call in to exit your position(s).

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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

 

There is a difference between the types of stops used to exit a market. And there are some basic reasons to not use stops. Now that does not mean you don't have some idea of where to get out. In fact the the biggest mistake traders make is to not define were they are going to get out or where to get out if they are wrong BEFORE they get in. I dont use the straight 2 point market order at an arbitrary price like others. If it goes against I look to see what the market is doing at the edge of my area. If its not looking promising (and by this time it should be clear) I press the close button. I have a cell phone just in case my net goes down.

 

Cut to the chase: Those guys that lost 8k on 1 trade either are trading with an account that is equal to you losing 8 bucks (no biggie) or they would of lost that anyway because you can always move your stop with a few clicks or tell the broker to cancel replace.

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Many traders do not place stop oders but they already have plan their stop loss exit point/price. They prefer to execute their stop loss manually. When market reaches the stop loss order price it becomes a market order; in many cases the prices executed are not better prices but are the worst prices.

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Many traders do not place stop oders but they already have plan their stop loss exit point/price. They prefer to execute their stop loss manually. When market reaches the stop loss order price it becomes a market order; in many cases the prices executed are not better prices but are the worst prices.

 

It could be like that, Or may be they want to cheat the broker and get the profit more huge..

For me, I always use stop loss, because its important and make more safe my account.

I've done lite this in Liteforex broker for 5 years..

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Trading without a stop loss is like driving without stopping at traffic lights. It may go faster, but you tremendously increase your chance of getting killed. :doh:

 

Yeah quite accurate analogy. I always place stops in my trading, it's even done automatically by special software I found on FF.

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Trading without a stop loss is like driving without stopping at traffic lights. It may go faster, but you tremendously increase your chance of getting killed. :doh:

 

Minimal losses is the key. If you are putting size on from the start, then a good stop is important. If you are starting really small. then the stop isn't that big a deal if the amount risk isn't a risk to your existence as a trader.

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I guess there has to be every kind of traders in this world, the ones riskier and the ones safer. It all depends on their trading style and the goals they are willing to reach in Forex.

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