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Movements of Forex, and using a stop loss

  • #21
  • Nov 28, 2006 7:45am Nov 28, 2006 7:45am
I liked that: "Do not trust anyone"... specially ourselves!!! LOL



Quoting Rezo
Look, when market conditions are abnormal, and/or there is higher than usual activity on the market, brokers - especially retail brokers are at higher risk to make or lose money. Thats when most traders "suspect" of fishing, and thats when some brokers go for fishing.

so, trend, broker... trust me when I tell you - dont trust anyone

cheers
  • #22
  • Nov 28, 2006 7:47am Nov 28, 2006 7:47am
Quoting iiivb
I am cool buddy! I just did not like that dude saying this "thread is crap" or something... that is against the forum rules.

Actually today i closed a usdjpy short of one week without stop loss (+130 pips profit)... it depends on the trend strenght... some days i close it 24 hours later.. with losses... sometimes i close it 1 week after.. with profits

Usually losses show up before 24 hours... so I know that that time is the critical one...

I have one year trading... last week i was 4th place on forex solution's competition... i made +200% profit last week.. http://www.forexworldseries.com/leaderboard.html ( i am the 4th place on the section "week 4")
cool
  • #23
  • Nov 28, 2006 7:51am Nov 28, 2006 7:51am
Im confused

Trust or not??which one..keep up the discpline friend..
  • #24
  • Nov 28, 2006 7:53am Nov 28, 2006 7:53am
END-hope we will successful on whatever path we choose
  • #25
  • Nov 28, 2006 7:54am Nov 28, 2006 7:54am
My statement:

Trust the trend... jump on it on time and happy trading! but... jump on it too late... and suffer!
  • #26
  • Nov 28, 2006 7:54am Nov 28, 2006 7:54am
Quoting shahfx
Im confused

Trust or not??which one..keep up the discpline friend..
trust ME
  • #27
  • Nov 28, 2006 7:55am Nov 28, 2006 7:55am
Quoting shahfx
END-hope we will successful on whatever path we choose
Amen
  • #28
  • Nov 28, 2006 7:57am Nov 28, 2006 7:57am
Quoting Rezo
Amen
amin!!amin!!peace
  • #29
  • Nov 28, 2006 8:14am Nov 28, 2006 8:14am
If you are a system trader it is easy to show that stoplosses will always cost you money if you have a reversing system (one that goes long,short,long...). A point that Tharp makes in his money management books. Several years ago I did an experiment - back test your system (any reversing system) with an increasingly large stoploss and simply plot the number of pips yours system makes against the stoploss value over a decent sized historical dataset. The results showed that the profits asymptotically approach the maximum the closer your stoploss gets to zero. Interestingly the same is true for a take profit strategy. The key to managing drawdowns is to recognise that drawdowns are normally distributed and to know what typical maximum drawdown is ever likely to occur for your system. This will contextualise your drawdowns so that they are more easy to handle psychologically. Don't worry about the one off event - what happened to the USD after surely the most catastrophic event imaginable 9/11 - not a great deal. Mkts are a random stochastic process the statistics for which cannot be improved by the use of a simple strategy such as a stoploss or take profit.

As a consequence I never trade with a stoploss - after doing the experiment described above it demonstrated to me that stoplosses are a very costly form of insurance for which the premiums do not justify the risk.
  • #30
  • Nov 28, 2006 8:23am Nov 28, 2006 8:23am
wow! very sophisticated explanation... but I agree! :
  • #31
  • Nov 28, 2006 8:29am Nov 28, 2006 8:29am
Quoting richp
If you are a system trader it is easy to show that stoplosses will always cost you money if you have a reversing system (one that goes long,short,long...). A point that Tharp makes in his money management books. Several years ago I did an experiment - back test your system (any reversing system) with an increasingly large stoploss and simply plot the number of pips yours system makes against the stoploss value over a decent sized historical dataset. The results showed that the profits asymptotically approach the maximum the closer your stoploss gets to zero. Interestingly the same is true for a take profit strategy. The key to managing drawdowns is to recognise that drawdowns are normally distributed and to know what typical maximum drawdown is ever likely to occur for your system. This will contextualise your drawdowns so that they are more easy to handle psychologically. Don't worry about the one off event - what happened to the USD after surely the most catastrophic event imaginable 9/11 - not a great deal. Mkts are a random stochastic process the statistics for which cannot be improved by the use of a simple strategy such as a stoploss or take profit.

As a consequence I never trade with a stoploss - after doing the experiment described above it demonstrated to me that stoplosses are a very costly form of insurance for which the premiums do not justify the risk.
This is a very interesting post. I'd like to see you expand on it sometime soon. I think it would be an interesting read.
Capital Preservation is key to long term wealth accumulation
  • #32
  • Nov 28, 2006 10:07am Nov 28, 2006 10:07am
This is my analogy, sort of an extension to my analogy of forex to a moving car.


Stop loss is like the seatbelt you wear in the moving car. Sure, the probability, of getting into car crash is relatively low (otherwise everybody would get into a car crash everyday), but one crash can kill you.

In order to protect your life (account), you must practice a stop loss. A 500 pip s/l is better than no stop loss, and you know NO BROKER would take out stop loss that high.

Don't treat the forex market as if it is regulated and a stable market. It is VERY UNSTABLE. One comment, one event, one insurance company can cause you dearly if you're on the wrong side of the trade.
  • #33
  • Nov 28, 2006 10:33am Nov 28, 2006 10:33am
Quoting richp
If you are a system trader it is easy to show that stoplosses will always cost you money if you have a reversing system (one that goes long,short,long...). A point that Tharp makes in his money management books. Several years ago I did an experiment - back test your system (any reversing system) with an increasingly large stoploss and simply plot the number of pips yours system makes against the stoploss value over a decent sized historical dataset. The results showed that the profits asymptotically approach the maximum the closer your stoploss gets to zero. Interestingly the same is true for a take profit strategy. The key to managing drawdowns is to recognise that drawdowns are normally distributed and to know what typical maximum drawdown is ever likely to occur for your system. This will contextualise your drawdowns so that they are more easy to handle psychologically. Don't worry about the one off event - what happened to the USD after surely the most catastrophic event imaginable 9/11 - not a great deal. Mkts are a random stochastic process the statistics for which cannot be improved by the use of a simple strategy such as a stoploss or take profit.

As a consequence I never trade with a stoploss - after doing the experiment described above it demonstrated to me that stoplosses are a very costly form of insurance for which the premiums do not justify the risk.
This only holds true for a "reversing system". Don't be fooled that it is always better to trade without a stop.
  • #34
  • Nov 28, 2006 10:54am Nov 28, 2006 10:54am
you always use a stop, the difference is that you set it large enough so that it will not be hit by typical market noise and fluctiation.

Quoting iiivb
My dear friend,

I do not use stop-loss or limit... why? because as you said, I discovered too that they usually caused me more losses than if I had not used them at all!

I am a stricly TREND TRADER, and, since my personal point of view, if you trade the trend, using stop-loss or limit are barriers to success.

But if you are a scalper, a very short term trader (comparing against my 3-30 days trades), or a counter-trend trader, YOU MUST USE STOP-LOSS AND LIMIT.

You are not wrong pal, trust me!
  • #35
  • Nov 28, 2006 11:01am Nov 28, 2006 11:01am
Quoting hilmy83
Don't treat the forex market as if it is regulated and a stable market
of course its not... and who claims its stable and no need in stop loss - answer me to an easy question (not so relevant, but to stress the difference of the market): what are forex market opening hours?

(I discussed it today... butnot here)
  • #36
  • Nov 28, 2006 3:00pm Nov 28, 2006 3:00pm
I think it is good to use stop losses. What I do is look at the market and determine support and resistance levels. Then depending on the momentum of the market I place stops 2 to 5 pips above resistance (sell) or below support (buy). If my stops are met then the trend is going against me and I need not be in that trade anyway. I usually make 75 to 150 pips every day or more, and my stops are hardly met.
It's all about chart analysis.
  • #37
  • Nov 28, 2006 3:23pm Nov 28, 2006 3:23pm
Quoting richp
If you are a system trader it is easy to show that stoplosses will always cost you money if you have a reversing system (one that goes long,short,long...). A point that Tharp makes in his money management books. Several years ago I did an experiment - back test your system (any reversing system) with an increasingly large stoploss and simply plot the number of pips yours system makes against the stoploss value over a decent sized historical dataset. The results showed that the profits asymptotically approach the maximum the closer your stoploss gets to zero. Interestingly the same is true for a take profit strategy. The key to managing drawdowns is to recognise that drawdowns are normally distributed and to know what typical maximum drawdown is ever likely to occur for your system. This will contextualise your drawdowns so that they are more easy to handle psychologically. Don't worry about the one off event - what happened to the USD after surely the most catastrophic event imaginable 9/11 - not a great deal. Mkts are a random stochastic process the statistics for which cannot be improved by the use of a simple strategy such as a stoploss or take profit.

As a consequence I never trade with a stoploss - after doing the experiment described above it demonstrated to me that stoplosses are a very costly form of insurance for which the premiums do not justify the risk.
It is clear that you get it. Nice to see a well thought-out explanation from testing and actual experience rather than the commonly repeated aphorisms of the guru of the month taken on blind faith.
  • #38
  • Nov 28, 2006 3:27pm Nov 28, 2006 3:27pm
Quoting twinchell
This only holds true for a "reversing system". Don't be fooled that it is always better to trade without a stop.
It is possible to create a system that has discrete entry and exit rules that don't include profit target / stop loss orders, and that isn't a SAR system, so I wouldn't say only. However, I agree that the SAR system is the most obvious example of a system that trades better without a stop.
  • #39
  • Nov 28, 2006 10:49pm Nov 28, 2006 10:49pm
Well guys, it seems that everyone has it's different point of view on wether to put a stop loss or not, but everyone agrees that at some point you have to cut your losses.

So the question is:

-How will the market be affected by stop losses

The answer is I don't know! But my final assesment for this nice little thread ( thanks for all your point of views again, it's been pretty helpful) is that one has to follow the trend. What is a trend then? I think that a trend cannot be forseen in the price of the market itself, as the price of the market is only the result of prevously done comments. Who knows if the trend is going up 100 pip or 900.

I believe in numbers, but I also believe that the main Forex market movers, on a long term basis ( trend), are done more by sayings of central bankers and rumors about interest rates, then by only numbers that are issued on News datas such as NFP.

There is a saying: " the less you trade, the more money you make" That's why it's better for a personal trader to use small leverage, follow the news and know who thinks what about the trend, better then seeing the charts, put a pen and say... it's Up/Downtrend. I think that this last analysis of the trend shoul effectively come with the Rumors, datas, news that are in the market.

I know that all which follow may be confusing, I am confused about it . The reason is that, I get my money in my bank with comissions, the more i trade, the more money I get. But i can't let my client loose money. So i have to do calculation, on trend and on scalpers trading...( fast trading). So i actually agree with all of you guys, even if it seems impossible.

Here is the final assesment that resumes what i said earlier:

-Following trend trades bear no stop losses except in clear trend reversal ( as usa lowering interest rates rumours, china diversifying it's currency, options premiums getting more attractive in Europe... wanna know the next uptrend for the dollar ? hehehe stay tuned)
-Short term trade should have no stop loss either, but should be closed manually quite fast, if you have the time to stay in front of your computer it's good, if you don't have the time... then don't go against the trend and you may make some good bucks.

Thank you for feedback again, it helped me a lot to clarify what was actually my trading strategy.

PS: I traded for one year, 6 first months lost money, last 6 months made money. My monthly average profit is 40%. Maybe i will loose some money at the end of this year which will lower my annualy profit which is now 140%

Happy trading, and dont take too much leverage at the beggining!!!
  • #40
  • Nov 28, 2006 10:54pm Nov 28, 2006 10:54pm
Even with my high profit rate, I had many errors trading, so I think that without my stupids errors, I could have done a lot more profit. I need some experienced people who would like to share ideas in PMS.

I'd need serious, profit making experienced traders that could PM me, with whom we'd get to a point to know exactly when one is likely to enter the market and why.

It's not about elitist kinda thing, it's just that a 2 people conversation is usually more efficient, of course I may do a thread giving hints about each long term trade I would do.

After all this Forum has been pretty helpfull untill now, I think there is really nice people around!!

Cheer up
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