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Do you believe tight stop-losses cause losses in the long run? 76 replies

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No Stop Losses!!!

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  • First Post: May 9, 2006 1:42pm May 9, 2006 1:42pm
For anyone that thinks they don't need a stop loss...
I always use a stop loss. If you are one that doesn't, I would like to tell you why you should. It is storming here pretty bad. I have a order to be made when price gets to a certain spot. I set my stop limits right away. Now what would happen if I had that order out there and it was triggered and I didn't put a stop loss on thinking I could just watch it after the order was triggered and then put the stop loss on. If my computer was down due to the storm, and no stop loss on my trade, what would a person do. I have been thinking about this and would just like to remind people of it and also the ones that think they don't need one. Could be very disasterous. Just me rambling again. Now I'll shut up.
JOHN 3:16
Excellent point. Stops are a necessary evil for most systems.

I, myself, don't use stops, but the system doesn't allow for them.....but mine is a rare exception.

I know of a few BIG traders who don't use stops as they tier their entries against the trend at key levels...which is a popular method for commercial traders.

Check out the COT data soemtime and you'd be suprised at how popular it is to trade AGAINST the trend in the commercial market.
Capital Preservation is key to long term wealth accumulation
I would never advocate anyone taking unnecessary risks, but I think stoplosses are over rated. You see, they tend to be become a crutch for making bad trading decisions. If your not confident about a trade, you can very easily just throw it on with a stop and let the market do as it will. Trading without a stoploss will keep you more disciplined by forcing you to only take the best trades. You need to know how to manage a trade, which comes with experience and skill, but I find that trading without a stoploss is a better risk management tool then using one.

The point about connection disruptions is a good one, and I take it very seriously. It's why I maintain several different connections to the internet/my broker. If you don't have this sort of commitment, then you should definitely have a stop in or suspend trading when a storm is brewing.

Just my 2 pesos...
Quote
I would never advocate anyone taking unnecessary risks, but I think stoplosses are over rated. You see, they tend to be become a crutch for making bad trading decisions. If your not confident about a trade, you can very easily just throw it on with a stop and let the market do as it will. Trading without a stoploss will keep you more disciplined by forcing you to only take the best trades. You need to know how to manage a trade, which comes with experience and skill, but I find that trading without a stoploss is a better risk management tool then using one.

Gee I would like to agree with you, but I really can't. You say that trading without a stop loss will keep you more disciplined when opening a trade, that may be true, but we all know the market rarely listens to the thoughts in our heads, and quite often a sure fire winning trade when placed, turns into the exact opposite. Trading without a stop loss requires you to have a cast iron resolve at time of exit, after all this is when we make and lose money, not when we enter, and there-in lies the problem as many who trade without a stop loss do so because they don't want to be wiggled out unnecessarily, believing if price moves in the wrong direction, it is just some minor noise that will move in the right direction shortly.

It will only be a matter of time before a market shift will wipe out a large proportion of these peoples accounts, I have seen it time and time and time again and it pains me each time I see it. If someone wants to counter the argument with "but I know mentally at what point I will close the trade", then why not place a "disaster stop" at that level, therefor eliminating the possibility of the scenario renasdad was talking about with the storm, or technical problems etc.

Smart stop loss placement is a safeguard against you making the wrong decision, a point where you can say "oh well I was wrong about that one" and move on. Don't place a stop and you are stuck waiting and waiting for things to turn around, tying up equity and, if the trade does turn around, lulling you into the belief that you read the market correctly, false confidence is dangerous. Each to their own in the end though, I am not here to judge others trading styles, I hope I see you in the bahamas.

Oh and mental stop are still stops by the way.
You can quit and they won't care, but you will always know.
What do you consider smart?

Some trade 5min others longer time frame like 4hrs. Would 15pip stop loss be enough for 5min or 15pip be too tight for 4hrs
I'd have to say with 4 hr charts, a person should have much more for a stop loss. 15 pips does not leave much room for error at all. And if a person uses 5 minute charts, well, I don't know really.
JOHN 3:16
In my opinion, you shouldn't think of stop losses in terms of pips when figuring out where to place them, I ask myself the folling question when placing stops:

"at what point would my trade idea be proven wrong"

Once you figure that out, then you look how many pips away it is and whether it is too far for your risk management level.
You can quit and they won't care, but you will always know.
Quoting MuddBuddha
I know of a few BIG traders who don't use stops as they tier their entries against the trend at key levels...which is a popular method for commercial traders.
I do this. I have a large number of orders floating around waiting for trends to reverse. I do have stoplosses attached to the orders, however. I find that when price breaks s/r it should either continue right away, or back up just a little and then continue. If it backs up a lot, it's a fakeout and a stoploss can protect against that.
Quoting renasdad
I'd have to say with 4 hr charts, a person should have much more for a stop loss. 15 pips does not leave much room for error at all. And if a person uses 5 minute charts, well, I don't know really.
I tend to use 15 pip stop losses on my trades and I live in 1 min - 30 min charts... I use 30 min to make sure I'm somewhat in reality and then hone in where to enter by going down farther and farther to 1 min charts. I aim for 5 to 6 pip gains per trade.

Most of the time if it skews more than 15 pips I was wrong or it was a crazy peak that took out my SL and lost me a heap of money (which has happened once). Thankfully demo money so far.
Quoting Akuma99
In my opinion, you shouldn't think of stop losses in terms of pips when figuring out where to place them, I ask myself the folling question when placing stops:

"at what point would my trade idea be proven wrong"

Once you figure that out, then you look how many pips away it is and whether it is too far for your risk management level.
Exactly. I stopped losing money when I found out that stoploss placement determines risk and position size. When you see that your theory of where the price is going shows that it shouldn't go against you more than 20 pips, set a 20-pip stoploss.

If theory says price could go against you 200 pips, and you don't have enough money in your account to perform the trade within your risk level with a 200-pip stoploss, don't do the trade.
Quoting sundownz
I aim for 5 to 6 pip gains per trade.
There's no way you can make consistent money doing this with a 15-pip stoploss. The spread takes half your profit and your risk is 3 times your reward.
This is it exactly. The stop needs to be where it is logical not a fixed set of pips.
If it does not fit my risk level then wait for one that does...

Damn that Hardwork discipline and patients... Scott


Quoting Mike Jolley
Exactly. I stopped losing money when I found out that stoploss placement determines risk and position size. When you see that your theory of where the price is going shows that it shouldn't go against you more than 20 pips, set a 20-pip stoploss.

If theory says price could go against you 200 pips, and you don't have enough money in your account to perform the trade within your risk level with a 200-pip stoploss, don't do the trade.
I should be more clear. I aim for 5 - 6 pips after the spread is figured in, sorry for the confusion. So far after 18 days my $5,000 demo account is up to $7,169 with an accurancy of 88.5% of my total trades. As you can determine by my riks/reward ratio my loss trades are larger than my win trades, but they are uncommon enough that it works out.

Sometimes I will go for a bigger gain if the trade is still running up in my short windows (I've gone as far as 20 pips), but if I get 5 - 6 pips over the spread value I tend to hop out and start scouting my next trade.

Quoting Mike Jolley
There's no way you can make consistent money doing this with a 15-pip stoploss. The spread takes half your profit and your risk is 3 times your reward.
It is hard to argue with success, but man you must be in front of your screen non-stop.. Really 1 minute charts? I eyes would fall out... LOL Scott



Quoting sundownz
I should be more clear. I aim for 5 - 6 pips after the spread is figured in, sorry for the confusion. So far after 18 days my $5,000 demo account is up to $7,169 with an accurancy of 88.5% of my total trades. As you can determine by my riks/reward ratio my loss trades are larger than my win trades, but they are uncommon enough that it works out.

Sometimes I will go for a bigger gain if the trade is still running up in my short windows (I've gone as far as 20 pips), but if I get 5 - 6 pips over the spread value I tend to hop out and start scouting my next trade.
Quoting Darkstar
I would never advocate anyone taking unnecessary risks, but I think stoplosses are over rated. You see, they tend to be become a crutch for making bad trading decisions. If your not confident about a trade, you can very easily just throw it on with a stop and let the market do as it will. Trading without a stoploss will keep you more disciplined by forcing you to only take the best trades. You need to know how to manage a trade, which comes with experience and skill, but I find that trading without a stoploss is a better risk management tool then using one..........
Twice I've lost 20%+ due to the unexpected whilst toying with the idea that stops were unnecessary. Never again. I use two stops; one mental where if the price reaches a certain level the trade is no longer valid and therefore I bail out. The other one, HARD, which is a disaster stop because the unforseen happens when you least expect it. Believe me, it will happen at some point.
I was here, here I was. Was I here? Yes I was!
Quoting SterlingTDR
Twice I've lost 20%+ due to the unexpected whilst toying with the idea that stops were unnecessary. Never again. I use two stops; one mental where if the price reaches a certain level the trade is no longer valid and therefore I bail out. The other one, HARD, which is a disaster stop because the unforseen happens when you least expect it. Believe me, it will happen at some point.
Well, in all fairness I frequently lose 10-30% on a failed trade so that doesn't bother me. I technically have a catastrophic stop too, its called a margin call at 50% loss. What makes it work for me is that a winner nets 30-100% and the wins are far more common then the losses. It's not how most people trade, but I'm ok with that...

I guess it really depends on why your taking the trades you are. If your taking them because of a chart formation or an indicator then by all means you should use a stop incase the formation doesn't pay off. My reasons for taking trades have very little to do with the chart so a stoploss is an arbitrary guess as to how things will play out.

A good part of why this works is because I don't take any random trade. If I don't know exactly what’s going on I hold off until I do. Risking 50% of my account keeps me from gambling on possible winners.

The point I was trying to make was that if your not supremely confident in the trade, you probably shouldn't be taking it. Trading without a stoploss is a testament to how much you really believe in your analysis. If you don't believe in it enough or can't accurately determine what your risking, then maybe you should consider that your analysis needs to be improved. A stoploss in the manner that it is deployed by most is simply a crutch for bad analysis.

PS- I say you, but I don't really me you, just anyone in particular that happens to read this...
Quoting smjones
This is it exactly. The stop needs to be where it is logical not a fixed set of pips.
If it does not fit my risk level then wait for one that does...

Damn that Hardwork discipline and patients... Scott
Agreed. I optimize my stop losses, so I always know what my risk level is based on position size (which is determined by that stop loss)
Mr. Trend
15M
SL/TP/Trailing stoplost:15/45/20

2H
SL/TP/Trailing stoplost:30/60/40

4H:
SL/TP/Trailing stoplost:50/100/60

Daily chart :
SL/TP/Trailing stoplost:100/open/manual
Quote
Trading without a stoploss is a testament to how much you really believe in your analysis. If you don't believe in it enough or can't accurately determine what your risking, then maybe you should consider that your analysis needs to be improved. A stoploss in the manner that it is deployed by most is simply a crutch for bad analysis.

Well I can only speak for my own decisions, and my stops are not a crutch for bad analysis, or that I don't have confidence in my decisions, it is a humble recognition that no-one is bigger than the market, that the market is never wrong, and it will always get you as soon as you become over-confident.
You can quit and they won't care, but you will always know.
Quoting Akuma99


Well I can only speak for my own decisions, and my stops are not a crutch for bad analysis, or that I don't have confidence in my decisions, it is a humble recognition that no-one is bigger than the market, that the market is never wrong, and it will always get you as soon as you become over-confident.
I wasn't picking anyone as an example brother.

Just trying to add an additional perspective...
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