Jump to content

Do stops lead to fewer profitable trades?


Recommended Posts

Hi all,

I realise stops are there to allow you to set a risk/reward ratio but my question is whether your trade is much more likely to succeed if you don't have a stop or you use stops like an emergency stop i.e. the risk to reward is massive for any particular trade.  I've had many trades where i've set a stop and its been closed out because the market has turned but only just enough to hit my stop.  If i'd set the stop lower, with more time it would have been successful.  Perhaps its more about knowing where to set the stop based on the chart rather than being so concerned about the ratio itself?  So i'm not anti-stops by any means i realise they're essential especially if you can't monitor your positions constantly but having a higher risk-bigger stop or better positioning of it could increase chance of success?  Any opinions anyone on this? 

Also is there such a thing as having a probability of success on a trade?  I.e. if you have a low limit is the probability of success higher than a high limit e.g. 0.5 vs 20, time is also a factor on all of this.  Or do people just see the market as black and white up or down i.e. if its going up half a point its going to go up 10 points so whats the point of very low limits. Of course market conditions may also influence the probability, so i assume successful traders although they can't put a % probability on success they can read the market well enough that they can roughly say that there is likely a greater than 50% chance that any trade may be successful?  Sorry just rambling really.  I haven't invested hours and hours of reading so presumably there are answers to all of this and I need to read more.

Thanks for any comments in advance

 

Link to comment

Larry Connors did a study on this in the 90's (using stops or not)

I use stops - I just add a point or 2 to cover spreads etc

The markets are mathematical points of force, the laws of probability and probabilistic returns apply to trading - most people never get in sync with that hence the high failure rate

Dr. Van Tharps book "Trade your way to financial freedom" details probability, statistical returns, win distribution and risk brilliantly.

Hope it helps and good luck on your trading journey

 

  • Like 1
Link to comment
13 minutes ago, THT said:

Larry Connors did a study on this in the 90's (using stops or not)

I use stops - I just add a point or 2 to cover spreads etc

The markets are mathematical points of force, the laws of probability and probabilistic returns apply to trading - most people never get in sync with that hence the high failure rate

Dr. Van Tharps book "Trade your way to financial freedom" details probability, statistical returns, win distribution and risk brilliantly.

Hope it helps and good luck on your trading journey

 

SSH!  Don't tell him, else he might STEAL it 🤣

Link to comment
6 hours ago, Acidtrip said:

The main job of a stop loss is to ensure you don't experience a monumental loss and wipe out your entire account. 

Yeah this is the conclusion I have come to, it doesn't mean there aren't big risks.

Link to comment
20 hours ago, u0362565 said:

I realise stops are there to allow you to set a risk/reward ratio but my question is whether your trade is much more likely to succeed if you don't have a stop

most people can get direction right but mess up the execution and so stops end many trades that would have come right but without stops and even with very large stops your whole account is at risk.

Many algos take a different path, they see direction and a likely entry point but instead of a stop put in a hedge if price turns against them and just wait, so the equal trade in the opposite direction keeps the PnL static until price turns in their favour once again or just abandon the trade.

However you choose to do it you must do something to cover bad execution.

20 hours ago, u0362565 said:

Also is there such a thing as having a probability of success on a trade? 

no, all trades have a probability of 50/50 which is why you need a repeatable process,  a strategy which you can test and prove positive expectancy over a number of trades (see thread 'Trade Planning and Testing').

 

Edited by Caseynotes
  • Great! 1
Link to comment
5 hours ago, Caseynotes said:

most people can get direction right but mess up the execution and so stops end many trades that would have come right but without stops and even with very large stops your whole account is at risk.

Many algos take a different path, they see direction and a likely entry point but instead of a stop put in a hedge if price turns against them and just wait, so the equal trade in the opposite direction keeps the PnL static until price turns in their favour once again or just abandon the trade.

However you choose to do it you must do something to cover bad execution.

no, all trades have a probability of 50/50 which is why you need a repeatable process,  a strategy which you can test and prove positive expectancy over a number of trades (see thread 'Trade Planning and Testing').

 

I'm sure you're right on the 50/50 but to someone not in the know if the conditions look favourable i.e. there is a trend in one direction and you go in that direction how does it not swing to be greater than 50/50.  Anyway sorry i will go read some more.  Also getting annoyed by not being able to close because of price movements in the market it says that can be the difference between profit and loss i have found out.  Whats the probability of success if the **** platform worked seamlessly i wonder.. 

  • Thought provoking 1
Link to comment
43 minutes ago, u0362565 said:

I'm sure you're right on the 50/50 but to someone not in the know if the conditions look favourable i.e. there is a trend in one direction and you go in that direction how does it not swing to be greater than 50/50.  Anyway sorry i will go read some more.  Also getting annoyed by not being able to close because of price movements in the market it says that can be the difference between profit and loss i have found out.  Whats the probability of success if the **** platform worked seamlessly i wonder.. 

The problem is that people think they are trading with IG but they're not, they're trading in a market via IG. This is not a computer game where if you push the A button there is an automatic result, when you shout out a bid at an auction you might get a fill or you might just get a round of laughter instead. So the platform is not always the problem. It's not up to IG to fill your orders, it's up to IG to try to get your orders filled by other market participants, if the market has stopped then the market has stopped and everyone has to wait for it to start up again.

There is also the problem of getting run over by the big boys who are able to step in and take out multiple levels with just a nod and suddenly the next best price is a very long way from your order.

Some might remember I wrote this awhile ago in response when someone asked 'is spread betting for fools?'

'I didn't realise I was competing in a two way auction, I thought I was just gambling like I do in Vegas where if the action is really hot and the big guys are throwing lots of money around and the spread is getting bigger and bigger then that is exactly the right time to jump in, boy was I suckered.'

Link to comment
54 minutes ago, Caseynotes said:

of course, but perhaps you know different, you only trade with the trend so presumably your win rate is a lot higher than 50%? 🧐

Yes, the odds of being right are significantly less than 50% :D 

Link to comment
45 minutes ago, Caseynotes said:

The problem is that people think they are trading with IG but they're not, they're trading in a market via IG. This is not a computer game where if you push the A button there is an automatic result, when you shout out a bid at an auction you might get a fill or you might just get a round of laughter instead. So the platform is not always the problem. It's not up to IG to fill your orders, it's up to IG to try to get your orders filled by other market participants, if the market has stopped then the market has stopped and everyone has to wait for it to start up again.

There is also the problem of getting run over by the big boys who are able to step in and take out multiple levels with just a nod and suddenly the next best price is a very long way from your order.

Some might remember I wrote this awhile ago in response when someone asked 'is spread betting for fools?'

'I didn't realise I was competing in a two way auction, I thought I was just gambling like I do in Vegas where if the action is really hot and the big guys are throwing lots of money around and the spread is getting bigger and bigger then that is exactly the right time to jump in, boy was I suckered.'

Yeah I'd completely disconnected from what's really happening. You're right its not a computer game!

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      20,131
    • Total Posts
      88,227
    • Total Members
      69,117
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    vinprabhu
    Joined 06/10/22 04:45
  • Posts

    • Early Morning Call: Shell warns on earnings as refining margins drop The oil price is up after OPEC+ delivered a 2-million barrel per day cut, while Shell warns on earnings as it sees a drop in refining margins.    Jeremy Naylor | Writer, London | Publication date: Thursday 06 October 2022  Macro overview US equity markets consolidated yesterday after two days of strong gains. The Dow Jones fell by 0.14%, and the Nasdaq ended the session 0.25% lower. Overnight the session was mixed in the APAC region. In Australia, trade surplus narrowed to a six-month low - A$8.32 billion - in August, below market forecasts of a A$10.1 billion surplus. Exports grew by 3%, while imports increased 4% compared to last month. For San Francisco Fed President Mary Daly, the path has been very clear: "we are going to raise the rate until we get into restrictive territory, and then we are going to hold it there" until inflation comes down closer to 2%. In an Interview with Bloomberg yesterday Daly reiterated the Fed's commitment to restore price stability, and it particularly waiting for two important sets of data. She hopes tomorrow’s non-farm payrolls (NFP) will confirm the start of a hiring slowdown. Earlier this week, JOLTs openings fell to their lowest level since June 2021. Current expectations for non-farm payrolls are 250,000 job creations in September. If actual figures were to match that forecast, it should be the lowest number of job creations since December 2020. The San Francisco Fed president would also like to see next week's CPI showing underlying price pressures either stabilising or falling. She could be disappointed there. If the headline figure is expected to fall to 8.1%, economists see core CPI rise accelerating to 6.5%. The Fed is expected to deliver a fourth straight 75-basis-point rate hike when it meets early next month. Equity overview Elsewhere on the equity market, Shell warns this morning that its third quarter (Q3) profits will be weakened by a sharp drop in refining margins and expects "significantly" weaker earnings from natural gas trading. N Brown posted an 82.4% drop in adjusted profit before tax and revised its profit guidance down. Imperial Brands announced £1 billion share buyback programme, and says that total capital returns in full-year 23 (FY23), including ordinary dividends and share buybacks, are expected to exceed £2bn. Levi Strauss & Company is set to post its third quarter earnings after market close tonight. Analysts anticipate earnings of 37 cents per share, gathering pace after the 29 cents reported three months ago, but some 23% lower than the same quarter a year ago. Revenue is forecast to increase by 6.7% to $1.6bn. Levi Strauss can count on the strength of its brand, but like many other retailers, it has to face supply chain issues, in an adverse economic environment. Investors will be particularly attentive to the group guidance, which at the moment stands at $1.50-$1.56 for the full year. Constellation Brands Inc is poised to release its second quarter (Q2) earnings before the US opening bell. The maker of Corona beer is expected to report an 18% increase in earnings per share to $2.78. Revenue should reach $2.50bn. Commodities Oil prices are holding at the new three-week high set yesterday. OPEC+ agreed on a two million barrels per day (bpd) cut yesterday, saying it was an adequate response in a context of rising interest rates and weakening global economy. US president Joe Biden called the decision "short-sighted" and said he would continue to assess whether to release further strategic oil stocks to lower prices. The next OPEC+ meeting will take place on 4 December. OPEC+ will move to meet every six months instead of monthly meetings. The EIA confirmed the decline across the board announced by the API on Tuesday. Crude inventories fell by 1.4 million barrels last week. U.S. gasoline stocks shrank by 4.7mn barrels, and distillate stockpiles fell by 3.4Mln barrels has context menu     This is here for you to catch up but if you have any ideas on markets or events you want us to relay to the TV team we’re more than happy to.
    • Stock markets remain in a more bullish pattern after the losses of recent weeks, and Asian indices made some more progress, albeit in a more tentative fashion. Oil prices remain on an upward path following OPEC's move to cut output by two million barrels per day, pushing prices to their highest level since mid-September. Stronger data in the form of the ADP report and the ISM non-manufacturing PMI caused a wobble in stocks, which have rallied on fresh hopes that the Fed will pivot away from its hawkish policy in the near future. Today is a quieter day, with just the UK construction PMI and weekly jobless claims, and the focus is now shifting to tomorrow's non-farm payroll report.   
    • Scallops Chart Pattern are J-shaped, inverted J-shaped, or mirror J-shaped continuation patterns that appear often during trending markets. This pattern has a steep momentum and a rounded bottom or top. The structure is pretty smooth at first, then the market begins to rush up with significant momentum, or vice versa. Scallop patterns appear less frequently than other continuation patterns such as flags or pennants, yet they are among the most stable forms.   Types of Scallops Chart Patterns There are four types of Scallops, two of which suggest bullish movement, while the other two imply bearish movement.   Ascending Scallop Pattern Inverted Ascending Scallop Pattern Descending Scallop Pattern Inverted Descending Scallop Pattern Read More -   Scallops Chart Pattern    
×
×
  • Create New...