Trading Without a Stoploss--BHILC

Try this thread

http://www.forexfactory.com/forexfor.../paperclip.gif Peter Bain's Pivot Strategy

SMJ

I read BWILc also, And the no stop idea bothers me. Never mind if the market crashes or not, what if it doesn't come back for years? When was the last time GBPUSD traded at 1.3700.. Try 8 years ago...

I need my capital a little more than that, not to mention the handing fees and rollovers and interest differentials and times when one does not have access to their account.

I think it is a recipe for disaster.

SMJ

Correction, 6 to 7 years ago..
SMJ

No stop loss is probably not a great idea but quite a few systems use it, the theory being that the maximum drawdown would be 100 pips as an example .. this would occur on only a rare occasion and the system would be robust enough to recover from that. Also useing low levereage is essential.

I prefer to use a wide S/L even a 100 pips in case of a catastrophic event like a terrorist attack or suome such.

BWILC relies on daily timeframes so it is reasonable to anticipate that a strong move away from your entry WILL come back.

But at some point you may have to give up and take the loss. The reality changes and if you can change your perception of the trade fast enough you can keep the loss maneagable.

In Theory ...

I can agree with your statement about keeping the loss manageable, however, I have always traded in a more mechanical way with some descension. I just get a warm fuzzy feeling knowing I have a predetermined stop loss point, even if I do not actually place it as an open order. Knowing how far I will go is key to my comfort level.

Good points on using low leverage on this type of trade. Of course lower risk means lower profit. it is all a balancing act isn't it?

Thanks much SMJ

In my opinion BWILC assumes a rather large account or the ability to trade with fractions of a dollar so the account is large on a relative basis.
O a n d a and other brokers allow this. I have not used them but am investigating.

The reason for the large account is the desirability of having several positions open at the same time. These positions are to be scaled in and out as the market and trading style dictates, not placed at the same time. Always trading with the long term trend. (Take a look at an hourly chart and go back half a year or so and the trend will likely be obvious) Never trading against the trend. So assuming long trading is the direction of the overall trend. Then only longs are taken. Never shorts. Reversals are opportunities to get in long when they begin to revert back to the trend direction.

With several open positions, very likely all at different starting points, the trader then can decide when to take profits on each position, making profits along the way, and when to scale in new positions. Alternatively if the market turns against the trader's postions, then scaling out along the way down can be employed. Holding on for a reversal is an alternative. An alternative I recently used successfully.

Think about what the trader will need to know about the market:
What moves the market fundamentally.
What to do when reversals occur.
Some of these answers can be seen by looking at price history. Using price patterns.
These answers are also in BWILC.

Look at the price history of a pair in the long term. If a trader could get on board for the long term, scaling in on upmoves and out on downmoves... letting some losses run until they turned then adding to longs again. The trend of the market will pull the trader along.

Look at the market, big picture. weeks months... where would a trader place a stop if one was needed for peace of mind. Look at the amount of the account. What would be catastrophic. Look at historic price action. Where would that stop be, if at all.

That is the theory.

Well i'm just about through the book (about 2 doz pgs to go), calling it quits for the day but have to say that in my library of books on trading, that for me, BWILC was a real whack on the side of the head. It really got me thinking out of the box. I know the book is apparently controversial (?) from what i've gathered here and there on this forum ( i missed the original threads that were deleated ).

For myself i found Dirk's style of writing light, witty, and easy to follow. Very thought provoking and i plan to begin the second read tomorrow after finishing up the last chapter.

I am currious as to how many in this forum may be using all or parts of the BWILC - Median 4 x 1 system? I'm opening up a new demo account next week to begin testing the incorporating of the ideas.

Cheers,
Thom

A post script: I've finished the book and i'm going through it again. There be gold in them thar hills!!!

afterall this time.... and i tought no stop loss is unpopular idea......

Anybody.

I ran into this thread today and I am surprised that it has not been shut down; no activity for years. Anyway, I am interested in the subject (BWILC) and am wondering if there is anyone still talking about it? I was particularly interested in hearing from Lou as he was one who appeared to be actively trading in a similar manner.

If anyone is still home and interested in revitalizing the discussion (or chatting off-line) I would like to hear form you. I will take a look here a few times to see if anyone has noticed, but I won't do it forever.

Have a happy holiday, everyone.

SR

Hi Blue monkey

I am currently curious as to if you are still using the No stop loss rule.

I am using the same rule and have not been stopped in over 50trades. but i had one trade that i intentionally stopped using instant execution since I was worried about the market at the time. and i lost about 1/5 of my gains in just one trade.. after 3 weeks of trading

But i just wanted to ask if you are still doing this? as i am currently am.. and would like to know if you think that this is a viable trading rule in the long run.

I have read BWILC and was actually encouraged by my mentor (not dirk) to trade without stops. I do have stops but it is extremely far.

I honestly haven't been stopped in 3 weeks now. But that one trade that i CUT was a doozy and i was wondering what is your experience on the "no stop rule" is this a recurring thing? you won't get stopped in like "large number of trades" but you will get stopped once that actually hurts your account once in awhile?

Sorry english is not my native language.

I first read Dirk's book in 2010 (thank God).

I more or less went immediately from losing money to making money.

I did screw up early on (but still made profits on a monthly basis).

Once I joined Dirk's weekly briefing service and went through the course
(which is now a fraction of what I paid for it) I was more profitable over
shorter time frames and was rarely caught out.


Some of the assumptions people are making here about Dirk's training
are flawed due to a variety of preconceptions about how you trade forex.

Also Dirk teaches a way of thinking about trading that includes guidance
but not specific rules on trading.

You work out the specifics that suit you based on how often you check
your trades, what return you're looking for and a whole variety of other
factors (that's what his course is all about).



The preconceptions people have about forex trading would be
funny if they weren't so sad.


For example the idea of the market going against one of your trades

100 pips.


That's quite normal randomness in the forex market.

When you start booking profits of 150, 200, 300 even 400-600+ pips
little moves of 100 pips start taking on a whole different perspective.



And large stop losses are not a real concern (mine are over 1,000 pips
but that's really not that big an issue...I've never been stopped out and
it's very unlikely I ever will).


If something unbelievably off the charts drastic happens then I'm
likely exiting all my positions if it's likely to go against me.

In a worse case scenario that might mean a 30% loss on the account...
maybe.


If something large happens again I'm thinking about exiting.

One of the foundations of Dirk's over riding strategy is real time
analysis of fundamentals and price.

To get caught out with huge losses would take something
unprecedented (which probably WILL happen in your lifetime)
and for you not to act.



There are a few reasons large stop losses are not such a big
deal.


1. Low leverage.

As an example maximum 10:1 leverage.

I use a brokerage (O a n d a) that allows me to enter with quite tiny
positions as closely spaced as I like.

In other words I could enter trades just 5 pips apart if I wanted
to.

Usually I space trades somewhere between 25 and 60 pips apart.

When the market is moving slowly the trades are closer together
(and possibly smaller)....when the marketing is moving more
quickly I place trades further apart.

That allows for "cost averaging".

Instead of trying to pick a top when I'm selling short or a bottom
when I'm buying long I have multiple positions.

That means the more the price moves "against" me the larger
my position becomes and the closer my average price will be
to the current market price.

I suppose you could call this the "martingale" effect because
with 10:1 leverage because with 4 ranges in your grid you
if you were going long you might open:

# 1 position in the top grid
# 2 in the next grid down,
# 3 in the grid below that and
# 4 positions in the bottom grid.

(note that I would actually have 6 positions, 12 positions
18 positions and 24 positions because my trades are
so much smaller and spaced throughout the overall grid).

If your grid lines are spaced say 200 pips apart (the spacing
is up to you, your style of trading, the currency and other
factors) then your trading style will take in 600-800 pips
of movement "against" you as a natural part of the system.

But more important the average price of all those
positions is going to be closer to the price at the bottom
of the grid than at the top so you have a looong way to
go before a price dip lower than the bottom of the
grid causes a problem.


In the real world any price move against a position I take
is more likely to be in the range of 100-300 pips "against" me
if that happens.

To lose a substantial amount
of money with this low leverage and large stop losses would
require further movement of over 400 pips on top of that large
move of 600-800 pips against the FIRST position I took.

I would start losing around the 1,200 pip mark and could incur
serious losses if the price moved more than 1,500 pips against
the FIRST position I took.



Now if you're paying attention it's kind of obvious that you don't
just have the price of a currency drop 1,000+ pips overnight
randomly.

With moves like that you get a LOT of warning and plenty of time
to start exiting and picking up positions in the opposite direction.

When there's a fundamental change in the overall trend it's
time to change your overall position from long to short or
vice versa.



And the particular method I use is even MORE sturdy than that.

Why?


Because I base most of my overall trading decisions on a weekly
chart and use a massively extended "grid" looking at the price
over several years.

And I only trade ONE currency (EUR/USD) so it's very easy to keep track of
what's happening with that currency.

Over the last couple of years the EUR/USD has ranged between 1.19 and
1.50 (see the attached image).


When the price is going down and gets below 1.35 I start wondering when
it might turn back up again.

When it gets down to 1.27 I'm probably picking up some long positions or looking
for a trend change.

And if I have any left I'm getting really edgy about any short positions (smaller
positions and I exit them in profit more quickly).



In other words I'm really thinking of buying low and selling high (this really
isn't complicated).



At the other end when the price is over 1.35 I'm wondering

when it might turn back down, when the price is getting over 1.41
I'm getting edgy and wondering if it's time to go short.

At 1.43 and 1.45 I start to look at having less long positions and look
for the trend to change.


So the risk control is:

# I can take over 1,000 pips movement against my earliest entries
without a loss...

# I don't make any serious losses until around 1,500 pips movement

against my earliest entries...

# I'm usually not long in the high extremes or short in the low extremes
meaning it would take a move of over 800 pips BEYOND where the lowest
or highest price has been in the last few years for me to make a substantial
loss AND me taking no action when an extreme event like that took place.

# So in real terms the price would have to move something like 2,000 pips
in an unexpected direction and I've have to do nothing about it for me to make
substantial losses.


There's always a risk of something like that happening but it happening without
any warning or time to exit positions is highly unlikely.


I'm aware of my limitations.

Although I am getting better at reading the overall trend I can't pick the top or
the bottom of a market.

And I'm not a tenth of the trader Dirk is which is why I have these tweaks in
my trading method to reduce my risks.


On the topic of prices going against you, I can tell you that some of my
biggest profits came when the price went against me 200 or 300 pips then
corrected over the next week or so.

The disasters for many forex traders trying to pick highs and lows become
my best trades.


It's very realistic with this method to make 10% to 15% profit a month.

It's reasonably low stress and you actually do better if you check your trades
around twice a day and set a variety of take profits some short and many
quite long.


I hope something in this post is useful.



P.S. For the record I had a look at the 1-2-3 forex trading method and it's
nothing like Dirk's method.

The Vegas Wealth Method...also no similarities at all.

EUR/USD price over the last couple of years between 1.19 and 1.50.

Anybody trades BWILC?