Arts of stop placment and profit target

[kingking 10]

In the forum, I have notice some threads discuss the management of stop loss and profit target. I still want to strat a thread on this issue and hope to hear the advice of the seasoned traders. I am still trading 1 contract on the YM and trade mostly on the small time frame

 

My current stop placement is 10-12 points. I rarely change it unless a support or ressitacne is 1-2 points around. In such a case, I will place a 14points stop placment. Neve adjust it

 

When I have 8 points gain I will adjust my breakeven to +2 to lock in my profit. I do not trail.

 

My profit target is 12 points but will adjust according to the market condition to only widen the target for another 10 points. e.g 22 points, 32 points

 

My struggle with this setup is that there are times I will be knock out prematurely for only 2 points (adjust to 2 when a gain of 8) while the market can offer me 12 points and sometime even more 22 points or 32 points. It piss me off!

But I am glad at other times because I captured 2 points instead of losing 10 points with the setup.

 

Is there a better setup to refine my current strategy?

[wsam29 10]

In the forum, I have notice some threads discuss the management of stop loss and profit target. I still want to strat a thread on this issue and hope to hear the advice of the seasoned traders. I am still trading 1 contract on the YM and trade mostly on the small time frame

 

My current stop placement is 10-12 points. I rarely change it unless a support or ressitacne is 1-2 points around. In such a case, I will place a 14points stop placment. Neve adjust it

 

When I have 8 points gain I will adjust my breakeven to +2 to lock in my profit. I do not trail.

 

My profit target is 12 points but will adjust according to the market condition to only widen the target for another 10 points. e.g 22 points, 32 points

 

My struggle with this setup is that there are times I will be knock out prematurely for only 2 points (adjust to 2 when a gain of 8) while the market can offer me 12 points and sometime even more 22 points or 32 points. It piss me off!

But I am glad at other times because I captured 2 points instead of losing 10 points with the setup.

 

Is there a better setup to refine my current strategy?

 

The problem is not your trade management, its your acceptance to being taken out and the market running in your direction. there is no right or wrong to your management style, just what is between your head and the way you think.

 

expect and accept trades will have that outcome.

[wsam29 10]

You the right idea about moving your stop up the moment the markets gives you a risk free trade. Just work on your mental part of the game.

 

If you need to smash your fist through a wall, break some key boards, do it, as long as you're not "pissed" at the market, you'll have a clear head to see what the market is actually doing.

 

But this is my routine, after closing a trade out, win or lose, I take a 10 minute mental break, I do anything else other than watch price action. Surf the net for porn, check email, check this site, do anything else other than watch what the market continues to do after your exit.

 

Why, I used to have this same issue you are dealing with right now.

 

Trading one lot is restricting.

 

What you could also do if you come to terms with it, is have an open target, just a stop in place and the moment the market gives you that risk free trade, move your stop and ACCEPT the worst case is a BE trade in which the market paid for your use of some mental energy.

 

Now I already have a good idea as to what you may be thinking while in a trade like this. you might think, "I have a profit, I should take it, but what if the market goes against me, I'll lose what I have right now, but, but, but..."

 

There are many factors other than market related issues that cause you to action or inaction. Just monitor yourself more closely each trade and you'll pick up your habits of thinking.

[brownsfan019 17]

King - I think wsam has it for you. Either you have to accept this or change it. It really comes down to testing multiple stop movement setups and see what works best for you over time. Nothing is bullet proof.

 

Here's what I found. Either:

1. Take trades going for a 'smaller' profit target with multiple trades
   
2. Take trades looking to catch the bigger moves and a lower amount of trades
   

Now, once you decide on what type of trader you are, that can help dictate what type of stop movement you use. For example - if you decide that you want smaller profits but multiple trades, then you should be aggressive with your stop movement or simply exit at a predetermined profit target. Or you can be 'generous' with your stop looking to catch the bigger move.

 

I have found that it's very, very difficult to catch the bigger move and have an aggressive stop. The chance for a small retracement is just too strong, unless of course trading around econ news.

 

Just keep in mind that while I am sure you will get some good advice here, you have to test and prove to yourself what is best for you. Sorry to sound like a broken record, but I really believe in proving a strategy to yourself. We can provide guidance here, but until you are on board, it's going to have a hard time working.

[walterw 10]

King, Stops should be placed in relation to price action (pivots) and not a fixed value... same is true for profits, price action should tell you when the move is over and not a pre fixed target... fixed targets its like spoiled kid that wants something (candy).... markets dont give some times what you want... market has a dynamic you want to simply follow... I here a lot here on TL about 10 12 points targets on YM.... thats some how pretty foolish, because some times you will get a 30 move and you leave money on the table... and some times market made a nice 8 point move and you didnt get it and waited to get mowed with - 10 -12.... price action is the best way you can manage a trade in terms of stop/trail.... if the market wants to give you a lot of profit he will give you, if he doesnt want to give you much profit... want give you... now never forget this : RRR = live or die.... cheers Walter

[walterw 10]

Just work on your mental part of the game.

 

If you need to smash your fist through a wall, break some key boards, do it, .

 

Surf the net for porn

 

 

 

Well thats new for me, sounds very proffessional jejejej.....

[wsam29 10]

thanks for paraphrasing my quote.

[Soultrader 12]

King, Stops should be placed in relation to price action (pivots) and not a fixed value... same is true for profits, price action should tell you when the move is over and not a pre fixed target... fixed targets its like spoiled kid that wants something (candy).... markets dont give some times what you want... market has a dynamic you want to simply follow... I here a lot here on TL about 10 12 points targets on YM.... thats some how pretty foolish, because some times you will get a 30 move and you leave money on the table... and some times market made a nice 8 point move and you didnt get it and waited to get mowed with - 10 -12.... price action is the best way you can manage a trade in terms of stop/trail.... if the market wants to give you a lot of profit he will give you, if he doesnt want to give you much profit... want give you... now never forget this : RRR = live or die.... cheers Walter

 

Now becareful there walterw I wouldnt say 10-12 pt targets are foolish. Well... yes and no. Let me explain. King mentioned that he trades 1 contract. Now when I used to trade 1 contract my mentor recommended me to take 10-15pt targets. This to me makes perfect sense. You mentioned, "because sometimes you will get a 30 move". Exactly.. only sometimes. For those who trade 2 or more contracts, taking 10-12pts is somewhat too small. I personally scale out half at +10 and try to hold my other half for 20-30+pts. I do this to eliminate risk completely... because I move my stop to b/e after exiting half.

 

King, trading 1 contract in my opinion is fairly difficult. I usually recommend new traders to start with 2 contracts because you can scale out and learn to ring the register. Maybe the ER (russell) provides a better opportunity for 1 lot traders? (because it moves) Brownsfan pretty much nailed it to the point. Maybe adjust your trade setups that can focus on larger moves instead of your 12 pt setups. Unlearn and learn.

[ashmat 10]

Hi King,

 

Stops and targets were a huge struggle for me in my early years of trading and it can be really difficult, but not impossible to overcome. I like brownsfan's reply when he mentioned the time frame.

 

Here's what I found. Either:

 

1. Take trades going for a 'smaller' profit target with multiple trades

2. Take trades looking to catch the bigger moves and a lower amount of trades

 

So I think it is very important to decide what type of trader you are. I am pretty much a pure scalper and my stops are very tight, but I am seldom in a trade for more than a few minutes. I just found that after trying several methods and time frames, this style suited me.

 

I have a question as well. Have you looked to see how often you score on the larger movements versus the smaller ones? i.e. What is the ratio to the 2+ trades, 10+ trades, etc. If you aren't getting a good ratio of the bigger moves, you may need to look at tweaking your entry system. If you are getting a good percentage of the larger moves, then the smaller hits are just part of trading.

 

Finally, It sounds like you have good discipline, which is 1/2 the battle. Just watch the emotions and tweak your setups until you feel comfortable.

 

Hope I could help a bit. You'll get a lot of great advice from this forum and hopefully you can find some things that work for you.

 

Good Luck (I like the idea of the "stops" thread)

 

Ashmat

[Anonymous 11]

Thanks to the wonderful people on this forum, I have been able to readdress this issue. In truth, I went back to a book that really shaped my belief system.

 

We all trade our belief systems.

 

I believe in surrendering to the market, in following it.

 

I believe in wanting what the market wants, not what I want.

 

I liken myself to a salmon egg floating down stream, going with the water. I do not know my destination, but I know the stream will get me there. The other traders are more like the adult salmon. Swimming against the current. Struggling to go up when the path of least resistance is down. For the egg, the destination is new life. For the adult, it is not.

 

Okay, so how does this work in terms of stops?

 

Once in a trade, I will only move my stop in the direction of the trade. As I said in another thread, I will only exit a trade with a profit by letting my stop get hit.

 

Exiting at a profit target is speculating on the future when it is not necessary to do so. Allowing the market to take you out, is dealing with things as they are, not as they should be.

 

On time stops. Here is where I had to go back and think about what I believe. If I exit at a time stop, then It is not about what the market wants but what I want. A time stop is saying, " I want x amount of handles/ticks/pips in x amount of time". The market does not care about what I want. It will take care of me, but on its terms not mine.

 

Things are different, however, when the trade moves against you from the start. I believe it is possible to know that you are on the wrong side of the trade PRIOR to your stop being hit. One does not have to wait for his stop to be hit to know he is at least wrong on timing and possibly right on direction. If your stop is 15 ticks away, I find it hard to believe you don't know you are wrong when price is 3 ticks away from your stop.

 

Can the market move 1 tick to your stop and then turn around? Certainly. So have the ability to get back into the market. If you are unable to get back in, well, there will always be more moves. The market will provide.

 

Don't concern yourself with "missed points". Stay in the moment. The real error is not what is "missed/given back" on this trade, it is not being in position to take advantage of the next opportunity because you were not in the moment. But rather still in the past asking "what if".

[brownsfan019 17]

King, Stops should be placed in relation to price action (pivots) and not a fixed value... same is true for profits, price action should tell you when the move is over and not a pre fixed target... fixed targets its like spoiled kid that wants something (candy).... markets dont give some times what you want... market has a dynamic you want to simply follow... I here a lot here on TL about 10 12 points targets on YM.... thats some how pretty foolish, because some times you will get a 30 move and you leave money on the table... and some times market made a nice 8 point move and you didnt get it and waited to get mowed with - 10 -12.... price action is the best way you can manage a trade in terms of stop/trail.... if the market wants to give you a lot of profit he will give you, if he doesnt want to give you much profit... want give you... now never forget this : RRR = live or die.... cheers Walter

 

Walter - allow me to share one piece of advice I received awhile back when trading - there is no way perfect way to trade. What works for you, may not work for others.

 

Point being - you cannot say that one way of trading is 'foolish'. That's just completely inaccurate.

 

For example - the argument can be made that if you go for +10 on the YM, why can't you re-enter the trade again if it indeed moves the 30 pts you quote. Just b/c it may have taken 2-3 trades to capture profits vs. one, that trader is just as profitable minus the tiny commission. However, that same trader is constantly taking profits and that can do wonders for your psyche.

 

Just keep in mind that when you reply to threads, you are providing your opinion. And while you are entitled to it, calling people or ideas foolish is indeed, foolish. Just b/c you don't like it or agree, doesn't mean it can't or won't work. As my high school math teacher used to always say - there's more than one way to skin a cat.

 

(I have no idea why that quote has stuck with me for so many years. It's rather disgusting, but proves the point.)

[wsam29 10]

Pivot, I think that part that confuses new traders as it did for me, is "how does one surrender to the market" without feeling like they don't know anything and yet be successful at trading?

 

You could say it boils down to "you knowing what you are going to do when the market does what it does."

[brownsfan019 17]

Things are different, however, when the trade moves against you from the start. I believe it is possible to know that you are on the wrong side of the trade PRIOR to your stop being hit. One does not have to wait for his stop to be hit to know he is at least wrong on timing and possibly right on direction. If your stop is 15 ticks away, I find it hard to believe you don't know you are wrong when price is 3 ticks away from your stop.

 

Pivot - my observation on this would be that your stop is too far to begin with. Stops are there to take you out at the very point that you are wrong. If your stop is 15 ticks and at 12 you know you are wrong, then your stop should have been placed at 12, not 15 in my opinion.

 

For me, and I've mentioned this before - I am not wrong until my stop is hit. That's it. My stop must be taken out before I know I am wrong on the trade. That's the purpose of protective stop losses. They stop a loss from becoming larger. The reason for this is simple - unfortunately not every trade is immediately in profit. Sometimes the trade is in the red for a few moments and then moves in my direction. As long as the stop is not taken out, this is a great trade in the end. Of course we all want to be in the profit immediately, but that's not realistic.

[wsam29 10]

I believe each time I rub my belly and tap my head before a trade, it will work out, but if I tap my head and rub my belly, my stop will be taken out.

[Anonymous 11]

Pivot - my observation on this would be that your stop is too far to begin with. Stops are there to take you out at the very point that you are wrong. If your stop is 15 ticks and at 12 you know you are wrong, then your stop should have been placed at 12, not 15 in my opinion.

 

Here we go again LOL. I really do like hearing your thoughts. Hope the same is true for you.

 

 

For me, and I've mentioned this before - I am not wrong until my stop is hit. That's it. My stop must be taken out before I know I am wrong on the trade. That's the purpose of protective stop losses. They stop a loss from becoming larger. The reason for this is simple - unfortunately not every trade is immediately in profit. Sometimes the trade is in the red for a few moments and then moves in my direction. As long as the stop is not taken out, this is a great trade in the end. Of course we all want to be in the profit immediately, but that's not realistic.

 

A protective stop is used for protection. It is placed to get a trader out of a bad trade. During the trade itself, some traders would be inclined to sit and wait , and worse, hope. Hope that price will turn around and prove them right. The stop loss is placed to keep a loss from becoming bigger than it has to be, because the trader couldn't do what needed to be done-admit he is on the wrong side and get out.

 

If you place your stop at a level where the analysis that caused you to go long (for example) would be no longer valid, then it is true that your stop being hit would mean you are wrong. But if you use a money management stop, it can just mean you are wrong on timing and not wrong on direction (or overall analysis).

 

As far as too far away, you know the 15 ticks was just an example. As previously stated, the "best" type of stop is a market stop. Many times I find that this stop (based on old highs or lows, pivot levels, Value Area,etc) can be too far away for most people. If that is the case, then the stop used is based on account size and says nothing about market reality.

 

But if one's stop is just about account size, why does one have to lose all the entire amount of the stop? Wouldn't it be prudent to exit prior to the stop loss and save money? Yes one may be willing to lose 150.00, but that does not mean one has to. Get out after losing 75.00. I hesitate to use numbers for two reasons: during a trade one should not think in terms of money gained or lost, but rather points/ticks/pips. And two , people will question the 150.00 number as if it is real. It is just an example.

 

BTW, thanks for your help in the previous thread. You helped me get back on track. I was not really a fan of the time stop,luckly, it had not been an issue in real time.

[wsam29 10]

Here we go again LOL. I really do like hearing your thoughts. Hope the same is true for you.

 

:eek: :eek:

[Anonymous 11]

Like I said, a time stop is not about what the market wants, but rather about what I want. However I do understand some of what Mark Fisher is talking about.

 

Assume there are two types of traders:

 

1. the quick

2. the dead.

 

The quick are characterized as those that can both see and seize opportunities in the beginning stages.

 

The dead need more and more confirmation to recognize opportunities. They rely on word or mouth, news events, and various other ways for confirmation. The dead are thus late to the party. They tend to be buying tops and selling bottoms.

 

Now let's suppose you are on of the quick and you buy the market at 100. 30 minutes later, price is still around 100, say 99-101. Now the dead are starting to come to the party on the long side. Mark is saying, if everybody can get in at the same price you did then the trade cannot be all that good. Here we see that. The dead are now able to enter at pretty much at the same price you did. This is a clue that you are not in a good trade. By definition, the dead are late and wrong more than right. So if they are going long..............

 

We are not so much talking about buying bottoms and selling tops here. What we are really talking about is the idea that once everyone else recognizes the value of the trade, the largest part of the opportunity (and some would say, easiest) is usually over.

 

Now, If you could focus on entries that are closer to the point where the dominant order flow changes, then the market should spend less time in a 'no-go" state. If you can go long as the loser (the dead) has to sell against himself (close his short) than you can use the oder flow in your favor. From VSA, we can see where the Smart Money entices the herd into a losing position so the herd has to close out at a loss, but in so doing create even more movement against themselves.

 

In other words, if you can enter at points where the market tends to react from, then the positon doesn't have to move against you. Nor do you have to sit and wait for the actually price run to start.

[walterw 10]

I want to formally apologize for using the word "foolish", it wasnt on the spirit of my post to be unrespectfull to anyone.... lol

[Anonymous 11]

Here is an example of what I was talking about.

 

The entry is on the open of the bar with the green arrow.

 

As this thread is not about VSA, I will not get into the set up much. I will say that the entry comes after a confirmed 'test' of supply. Professionals checked for sellers underneath the market and found none.

 

The lower purple line is Value Area Low. The pink line would be the initial stop. Here we have the best of both worlds:

 

1. Close stop

2. Stop based on reality (market).

 

With a stop that close, you might not even have a chance to exit prior to it being hit. On the opposite side, note that only one 5 min bar with equal close to the close of entry bar. After that bar, we are in a surging market and on the correct side. We are in tune with the market. Pretty instant gratification. We are patient while looking for the set-up, but once in we want immediate gratification.

 

Now, suppose are stop is lower. From a market structure point of view, a close below the Value Area Low Pivot is bearish. Therefore, even before our stop is hit, conditions for the long trade are nullified. Why then would we need to wait for the stop to be hit?

[Soultrader 12]

Here is a good excerpt from Markets In Profile following up on Pivotprofilers comment regarding the quick and the dead.

 

"Imagine you're at the track.... you make your wager before the race starts and settle in to watch the horse run. What if we changed the rules and let you place your bet after the race is already under way?

 

A totally different side of human psychology would be revealed. Once again, all information must be placed within its proper context - how will your decision be affected if the horse you had planned to bet on is currently in the lead? What is the horse is losing momentum around the second turn? How will your betting habits be affected by this real-time information?

 

We should expect, considering a general understanding of human nature, that the larger the horse's lead, the more individuals will place bets on that horse to win, and that bets on the horse in the back of the pack will evaporate. When you extrapolate this behavior in the context of financial markets, is it really so "irrational"? When you think about it, betting on a clear winner is a pretty rational decision, in the immediacy of the moment. This phenomenon is commonly known as "momentum investing," which is often the primary force behind short-term market movements. And just as the payoff odds decrease in betting a pool more money is placed upon a particular entry, the payoff odds decrease for late-momentum investors as the market explores extremes."

 

- From Markets In Profile -

[kingking 10]

Dear Traders,

 

I am so glad to hear so much constructive feedback from traders of this forum after less than 24hrs of posting the thread. At the moment, I still consider myself as scalper and will remain to trade a single contract. I will do some statistics as to how many of my trades are stop out, knock out at 2, profit for 12, 22 and 32. I know that the most ideal stop placement and profit taking is according to price action at the market but I am still at a novice stage so that the use of a preset protective stop and profit target is more practical.

 

I may also try to learn to explore ER2

 

 

Thanks again!

[brownsfan019 17]

Pivot and Soul - I understand what you are saying. And it makes sense that if a person is placing a stop purely based on a dollar amount, then that stop may not need to be hit to be wrong.

 

It appears there may be 2 ways to place stops:

1. A monetary stop
   
2. A stop based on the trade/pattern/etc
   

To be honest, I never really thought about placing an arbitrary stop based on a fixed dollar/tick amount. But, I can see why traders, esp new to trading, could try this method. If using a monetary stop, there may not be a reason to wait till it is hit.

 

With the way that I trade, each stop is different and dictated by the current market conditions and trade. Sometimes I literally have a 2 or 3 tick stop. Sometimes it's up to 10 ticks. The reason for stop placement here is simply based on the market conditions and movements. In essence, my stops are at 'micro-trend respect levels'. I know that doesn't make a ton of sense, but basically my stops are put at an area that on a short-term chart that level is being respected. For sake of discussion, call it minor support/resistance. So, if I am going long and I place my stop just beneath some short-term support, until that support is broken, I am still in the trade.

 

I understand that we all want instant profits and quick. There's nothing better than a trade that just sky rockets in your direction. But in reality, that doesn't always happen. So, for those new to trading or looking for ideas, just keep in mind that if you place stops in areas that are respected, you should consider giving that trade room to move. That's my opinion. Others say get out and then look to re-enter. I personally don't care to jump in and out b/c I am waiting for the move and maybe I am a tad early. I'm ok with being a little early and being patient. Others disagree.

 

Here is another key in all of this - your commission costs. Any trader should take the time to contact numerous brokers and negotiate a good commission rate. Keep in mind that if you are trading 1 contract and 2 or 3 times a day, you are not going to get rock bottom commissions; but, it doesn't mean you need to overpay as well. I personally would recommend the following futures brokers:

• Mirus Futures http://www.mirusfutures.com
  
• ProActive Futures http://www.proactivefutures.com
  
• Open ECry http://www.openecry.com
  

Also - as you trade more, make sure you are still receiving good rates. Brokers are good at giving you a rate to get your busines NOW, but very few (if any) review your account to see if you qualify for better rates. So, every so often as your volume and activity increases, be sure to test the waters again. Most often, you can simply get your current broker to lower rates if they know you may change.

 

Negotiating commission rates is just part of the business as far as I am concerned. If you are not doing this, you may be overpaying!

[PipsTrader 10]

This is usefull info. I am relatively new to Forex trading and it seems to me

that perfecting my stops and losses will help my profits.

[brownsfan019 17]

This is usefull info. I am relatively new to Forex trading and it seems to me

that perfecting my stops and losses will help my profits.

 

Pips - you'll soon find that entries are probably the easiest part of trading. At least for me it is. When to take profits and losses are much more difficult in my opinion.

 

Good luck!

 

PS

Why forex??? I have a hard time wanting to trade in something that is so unregulated. Trading is hard enough as it is without your broker or others playing against you. I know there are ways to trade outside of the bucket shops, but I just don't get it. I think futures offer incredible leverage (like forex) that is highly regulated (unlike forex) with simple, easy commissions (unlike forex).

 

I have a trader buddy that was 'black balled' at one of the major FX brokers b/c he was winning TOO MUCH. How does that work? If you are successful, your broker can turn away your business?

 

I just don't get it...

[milliard 10]

I have a trader buddy that was 'black balled' at one of the major FX brokers b/c he was winning TOO MUCH. How does that work? If you are successful, your broker can turn away your business?

 

I just don't get it...

 

I assume you're referring to a retail chop shop?

 

What kinda size was he turning & which shop was your buddy trunking through out of interest?