Do stops lead to fewer profitable trades?

[u0362565]

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

 

[diongaba]

You could lower your stake and allow for a bigger SL .But always risk no more than what you are comfortable % wise

 

[THT]

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

 

[dmedin]

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 🤣

[Kodiak]

Backtest 

 

 

[Acidtrip]

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

[u0362565]

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.

[u0362565]

15 hours ago, dmedin said:

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

Thanks for the info i'll look into that

[dmedin]

28 minutes ago, u0362565 said:

Thanks for the info i'll look into that

No?

[u0362565]

19 minutes ago, dmedin said:

No?

Sorry it was because you quoted THT and i posted on your quote not his!

[Caseynotes]

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 June 4, 2020 by Caseynotes

[dmedin]

3 hours ago, Caseynotes said:

a strategy which you can test and prove positive expectancy over a number of trades (see thread 'Trade Planning and Testing').

Especially the TradingRush Youtube videos! 😻🤓🐮

[u0362565]

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.. 

[dmedin]

5 hours ago, Caseynotes said:

no, all trades have a probability of 50/50

Are you sure about that?🧐

[Caseynotes]

26 minutes ago, dmedin said:

Are you sure about that?🧐

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

Edited June 4, 2020 by Caseynotes

[Caseynotes]

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.'

[dmedin]

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%  

[u0362565]

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!

[dmedin]

'is spread betting for fools?'

Karl Marx was right, the stock market is for swindlers and anyone who goes near it is a fool.