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Trading Without a StopLoss

  • #1,821
  • Apr 29, 2014 10:14am Apr 29, 2014 10:14am
Quoting Ronald
I guess all beginners tried trading without stop loss for a while thinking that if it doesnt exist it will never be hit I did so myself 10 years ago. However, to get a sl hit is much better that to get your balance wiped out
All this tells me is that if you do not use a fixed stoploss, you need something else in its place.
The argument that when it gets too big, you will lose your resolve to close it off, can be applied as well to those who move their fixed stop loss.
Why not let your broker help you carry your trade into profit, if you have indications that it will probably come back.?

Running a business without incurring any debt at all is usually a good way to limit the business.
  • #1,822
  • Apr 29, 2014 10:36am Apr 29, 2014 10:36am
Personally, I don't understand why people have such a hard time wrapping their heads around trading this way. I get the fact that the lion's share of retail traders won't want to trade like this, I really do. But just because you don't understand it doesn't mean it doesn't work. Is it hard to get used to carrying a floating loss most of the time (debt)? Yeah, it's hard to get used to, it takes time. Does not using a stop loss automatically mean you'll blow your account? No. Not at all. So long as you (1) have the capital and (2) trade appropriate volume.

I'm in 28 pairs now, looking to add USDCNH and USDHKD into the inventory. Yesterday was a fantastic day, today's a little rougher. But instead of pruning over charts for perfect price points and perfectly-timed entries, I just manage my inventory over time. Anyone can tell me I'm going to "blow my account" trading this way but, realistically speaking anyone who says that to me (1) doesn't know how much capital I manage and (2) assumes that I just found a thread on Forex Factory and started trading this way. It's been working well enough for me all this time and I'm not going to change it because some random person on the internet tells me I'm going to "blow my account". I mean, I'd have to try really, really hard to blow my account.
  • #1,823
  • Apr 29, 2014 10:52am Apr 29, 2014 10:52am
Do it
live it
regret it
learn it
Howlin' at the Moon on the Roof
  • #1,824
  • Apr 29, 2014 3:05pm Apr 29, 2014 3:05pm
Quoting Bilstein
Personally, I don't understand why people have such a hard time wrapping their heads around trading this way. I get the fact that the lion's share of retail traders won't want to trade like this, I really do. But just because you don't understand it doesn't mean it doesn't work. Is it hard to get used to carrying a floating loss most of the time (debt)? Yeah, it's hard to get used to, it takes time. Does not using a stop loss automatically mean you'll blow your account? No. Not at all. So long as you (1) have the capital and (2) trade appropriate...
What a lot retailers don't study is correlation. If you are in all 28 pairs, you are making money every day because of correlation. If they studied that, they would not be so quick to dismiss managing inventory.
If you are good at something, never do it for free--Joker
  • #1,825
  • Apr 29, 2014 3:07pm Apr 29, 2014 3:07pm
Quoting Rap Skallion
{quote} All this tells me is that if you do not use a fixed stoploss, you need something else in its place. The argument that when it gets too big, you will lose your resolve to close it off, can be applied as well to those who move their fixed stop loss. Why not let your broker help you carry your trade into profit, if you have indications that it will probably come back.? Running a business without incurring any debt at all is usually a good way to limit the business.
That's true. What is missed is that people assume that losing positions are just left to sit indefinitely, and that is not the case.
If you are good at something, never do it for free--Joker
  • #1,826
  • Apr 29, 2014 3:11pm Apr 29, 2014 3:11pm
Quoting Ronald
I guess all beginners tried trading without stop loss for a while thinking that if it doesnt exist it will never be hit I did so myself 10 years ago. However, to get a sl hit is much better that to get your balance wiped out
A lot of people have lost the meaning of the word stop loss.

A stop loss was never meant to be hit.

The only reason a stop is put into the market is to prevent catastrophic loss in the event that you are away from your terminal and cannot manage the trade.

If you trade small and across a number of pairs, a stop loss is not needed.
If you are good at something, never do it for free--Joker
  • #1,827
  • Edited 8:12pm Apr 29, 2014 4:06pm | Edited 8:12pm
Answering nobody in particular:

The question of whether to use a SL or not is somewhat moot; you can use a hard stop, mental stop, or (if your br0ker allows it) hedge your position. All of these achieve exactly the same thing (although with the hedge, you’ll pay more swap): you are reverting to a net flat position after realizing a loss. Hence the real question is: where should you exit a loss? The answer is: when your trading plan tells you to. You do have a plan, right?

Should you plan your exit at the time of entry, or wait until the trade unfolds (manage your position ‘dynamically’)?
1. Emotions are likely to be less compelling at the time of entry.
2. Unless it can be shown objectively that market probabilities have altered since the entry, there is no valid reason to adjust these levels while the trade is in progress.
3. 'Breakeven', or any other arbitrary P/L level, represents nothing more than a 'feel good' measure. Market behavior and probabilities don't change on the basis of one insignificant retail trader's P/L.
4. The closer that price moves 50/50 up/down, the less bearing that TP/SL (RR) ratio has on P/L. If price moved exactly 50/50 at all times, then win rate would be in exact inverse proportion to RR, e.g. if TP=3xSL, then SL would be 3x as likely to be hit first, resulting in a 25% win rate, and hence there would be no real 'edge'.

Bilstein (post #1822) brings up the interesting point re floating (unrealized) losses. How relevant are they?
In one sense, they are real. For example, suppose your account balance is 10k, but 2k of this is currently in floating losses (using MT4 terminology: Balance=10k; Equity=8k).
1. You suddenly need money for an unexpected emergency. Alas, you can withdraw only 8k from your account.
2. The floating losses consume margin, meaning that you have only 8k available for use in other trades.
3. If the losses do worsen to the point that you get a margin call, then yes, they suddenly become very real!
4. If I was to realize the 2k loss by closing it, and then immediately open an identical position (size and direction), then (apart from the additional spread cost) my account equity, exposure to risk, and available margin all remain exactly the same. And price will continue to move exactly as it would have done; consequently P/L-wise, the new position will perform exactly as the prior one would have. Hence a $2,000 floating loss and a $0 floating loss are exactly the same: it is the size of the currently open position that determines the risk exposure; the current P/L of the position is irrelevant.

But, from the standpoint of probability, how should we consider floating losses?

  1. If, currently, there is a 100% probability that the price will return to breakeven before ruin occurs, then the floating loss is effectively 0% real.
  2. If, currently, price has a 50/50 probability of moving up/down, and therefore the probability of the position worsening is equal to its improving, then the floating loss is effectively 100% real.
  3. If the probability lies somewhere between 50% and 100%, then the mathematical ‘reality’ of the loss lies (commensurately) somewhere between these extremes (0% and 100%).

Just my 2 cents (and without having read the whole thread).

David

  • #1,828
  • Apr 29, 2014 4:15pm Apr 29, 2014 4:15pm
Quoting hanover
Answering nobody in particular: The question of whether to use a SL or not is somewhat moot; you can use a hard stop, mental stop, or (if your br0ker allows it) hedge your position. All of these achieve exactly the same thing (although with the hedge, you’ll pay more swap): you are reverting to a net flat position after realizing a loss. Hence the real question is: where should you exit a loss? The answer is: when your trading plan tells you to. You do have a plan, right? Should you plan your exit at the time of entry, or wait until the trade unfolds...
Like someone once said on FF here, the ultimate SL is the margin call and the forced liquidation by the broker. And the ultimate question is: Do you really want to wait for that? Do you want to SL pre-emptively foregoing the possibility of your positions going into profit after you take the SL or do you want to wait until the broker forcifully liquidate your positions and you lose everything?
Make your losses in demo. Earn your profits live.
  • #1,829
  • Apr 29, 2014 4:16pm Apr 29, 2014 4:16pm
Quoting jmn5611
{quote} A lot of people have lost the meaning of the word stop loss. A stop loss was never meant to be hit. The only reason a stop is put into the market is to prevent catastrophic loss in the event that you are away from your terminal and cannot manage the trade. If you trade small and across a number of pairs, a stop loss is not needed.

Yea a stop loss really is a matter of last resort and shouldn't hit most times. A good trader would already see the market going against him and would account for that whether that be too hedge or exit and wait and see. There are times when the price can jump 25 pip in 1 minute, although rare they do happen. And I think it's those extraordinary times that the stop get slammed and save you like the seat belt in an accident. I guess it's something you learn when you are starting out, but I agree 100 percent, a stop should not be allowed to hit most of them times.
Being a trader is lonely, but being a great trader is lonelier still
  • #1,830
  • Edited 4:59pm Apr 29, 2014 4:32pm | Edited 4:59pm
"Unless it can be shown objectively that market probabilities have altered since the entry, there is no valid reason to adjust these levels while the trade is in progress."

It can be shown and objectively too, and surprisingly enough the probability of your trade can change from 80 percent success to 30 percent from the close of the very next candle that happens after your entry. Some pairs are more prone to this kind of behavior of coarse, but adjustment of a stop can be a good tool if used properly when things go your way. Everything else you said is spot on.
Being a trader is lonely, but being a great trader is lonelier still
  • #1,831
  • Edited 5:07pm Apr 29, 2014 4:50pm | Edited 5:07pm
Quoting hanover
Bilstein (post #1822) brings up the interesting point re floating (unrealized) losses. How relevant are they?
In one sense, they are real. For example, suppose your account balance is 10k, but 2k of this is currently in floating losses (in MT4 parlance: Balance=10k; Equity = 8k).
1. You suddenly need money for an unexpected emergency. Alas, you can withdraw only 8k from your account.
2. The floating losses consume margin, meaning that you have only 8k available for use in other trades.
3. And finally, if the losses worsen to the point that you...
First off, Hanover it's a pleasure to speak with you!

You bring up excellent points, as I mentioned, trading this way definitely isn't for everyone. But I'd be denying the fact that it works for me if I didn't step up and at least attest to it being possible.

(1) Is a good point. Thankfully, I'm not in that position. If we were to address the point further, we'd be delving into my personal finances. I'm lucky enough to be in a position where the capital in my trading account is capital I am and always have been ready to lose.

(2) Is the BIG point. Margin consumption is extremely important. Trading like this can eat up margin real quick and if you don't control floating losses, next thing you know POOF margin call, you're out of the game. One can work around it with a very basic risk model. Personally, I stick with keeping my "debt load" (floating losses) at 1-5% of account balance. Match this with a reasonably proportional trade size and reaching that 1-5% isn't something that happens in a given day, week, or heck, even a month. I know Rap mentioned earlier in the thread about his margin ratio, I do the same thing; set myself a limit on my margin consumption and I'm good to go.

(3) The method isn't without responsibility. I dunno how others do it, but you don't just let losses float forever. For example, as I mentioned, yesterday was a great profit day for me. However, today my positions in the EURJPY and NZDCAD were total crap. So, I closed them out and re-positioned myself in them. I'm holding other floating losses but I typically stick to my "top tier" floaters (the top-line items in your MT4 terminal window) and cycle them out slowly over time.

We all know that trades can sometimes "come back" even though relying entirely on trades coming back is a little silly, since I don't close my floating losses all out at one time, I give myself time to book more profits and more time for other trades to come back which, sometimes they do, sometimes they don't. There's other facets to how I manage my risk and keep myself from getting boned - even on heavily volatile days - but the way I do it will be different from someone with more or less capital than I have so I apologize for the lack of formal detail.

Edit: At the end of the day, all you're really doing is managing one big position in different legs spread across multiple pairs. That's the simple way of looking at it. Every pair has it's positive and negative correlations so, while I'd prefer to be either buy-side only or sell-side only at any given time, lately, I find myself getting "adventurous" and mixing up my inventory. If, for example, your maximum trade size is 100K (for argument's sake) you could take that 100K and divide it up into legs across multiple pairs. There's no "rule" saying you shouldn't use a stop loss, I just don't.
  • #1,832
  • Apr 29, 2014 5:15pm Apr 29, 2014 5:15pm
Quoting Bilstein
{quote} First off, Hanover it's a pleasure to speak with you! You bring up excellent points, as I mentioned, trading this way definitely isn't for everyone. But I'd be denying the fact that it works for me if I didn't step up and at least attest to it being possible. (1) Is a good point. Thankfully, I'm not in that position. If we were to address the point further, we'd be delving into my personal finances. I'm lucky enough to be in a position where the capital in my trading account is capital I am and always have been ready to lose. (2) Is the...

Thanks Bilstein for your thoughts & posts.
When you say "I closed them out and re-positioned myself in them." are you saying you booked the loss & re-opened the same position? I would see this as just giving your broker another spread payment. Am I reading this wrong & if not is there a benefit on the margin side by closing the losing position & re-opening the same position?
Thanks
  • #1,833
  • Apr 29, 2014 5:38pm Apr 29, 2014 5:38pm
most people just repeat the rules they have read elsewhere or have a bias based on their own experiences. If you look at the odds and probabilities there is absolutely no reason at all you have to use a stop loss to be profitable.
tradewith60
  • #1,834
  • Apr 29, 2014 5:38pm Apr 29, 2014 5:38pm
Quoting srt
{quote} Thanks Bilstein for your thoughts & posts. When you say "I closed them out and re-positioned myself in them." are you saying you booked the loss & re-opened the same position? I would see this as just giving your broker another spread payment. Am I reading this wrong & if not is there a benefit on the margin side by closing the losing position & re-opening the same position? Thanks
It depends. I do my fair share of analysis but I focus mainly on the big 00 levels and every 250 point mark in between as levels of support and/or resistance. If I book a loss, I'll switch sides on the trade if my analysis (the best of my ability to do so, lol) warrants it. Sometimes, I'll just take a hit on a correction and jump back in at the same direction and at the end of the day, you close the position for a profit. Now, I'll be the first to admit, while trading this way can work - assuming your risk model is good - it is a slower method. You won't make bank immediately like you would hitting a home run on one huge position.
  • #1,835
  • Edited 8:09pm Apr 29, 2014 6:33pm | Edited 8:09pm
@Forexia: sure, either you exit the loss at some point, or run the risk that it will grow to the point where you get margin called.

@Bilstein: thanks for your comprehensive reply. I was speaking generally, whereas I guess in your post you're referring largely to your own strategy specifics. I suspect that you're very wise in keeping floating losses below 5%.

@saneblane: for somebody with sufficient market knowledge, like yourself, I'm sure this kind of analysis is possible. For the average newbie, however, it's probably not, hence there would be no benefit in his attempting to dynamically manage trades (over simply fixing a TP and SL at the time of entry).

What I find interesting is people saying that exits are more important than entries, or vice versa. Surely any edge comes from having a knowledge of price movement, and the way price subsequently moves is not going to be altered by the entry, or exit, of any one retail trader. Hence if a trader is knowledgeable enough to know how to manage his exits, then he should be able to use much the same knowledge for timing his entries.
  • #1,836
  • Apr 29, 2014 7:37pm Apr 29, 2014 7:37pm
Quoting 60minuteman
. If you look at the odds and probabilities there is absolutely no reason at all you have to use a stop loss to be profitable.
That may be true but perhaps you should define "stop loss" and your opinion thereof.

Is a S/L when you receive a margin call
When you wait for days/weeks for a trade to "comeback" then close @ b/e. How is
that so great ?
And you're not taking into consideration an individuals trading method.
Does the trader use (according to balance) a tiny lot size or HUGE lot
size ??

Answer all ? Or does the equation not fit to every circumstance?
If not then it's invalid !!

??
When the Joker is in the deck.. fear not and play it well
  • #1,837
  • Edited 12:51am Apr 30, 2014 12:28am | Edited 12:51am
Quoting hanover
@Forexia: sure, either you exit the loss at some point, or run the risk that it will grow to the point where you get margin called. @Bilstein: thanks for your comprehensive reply. I was speaking generally, whereas I guess in your post you're referring largely to your own strategy specifics. I suspect that you're very wise in keeping floating losses below 5%. @saneblane: for somebody with sufficient market knowledge, like yourself, I'm sure this kind of analysis is possible. For the average newbie, however, it's probably not, hence there would be...
Thanks for acknowledging my comments, Hanover. I guess the reason why whether to use SL or not in trading is such a debatable decision is that it also depends on the market dynamics present. If we were in the forex market condition of the pre-2008 financial crisis years, for example, it would probably be more sensible and prudent to use SL because the market tends to trend so strongly and for a persistently long time in one single direction so if one is to trade without a SL in place, the outcome would be more catastrophic should he/she be on the wrong side of the market. But in the current relatively ranging market where the PA can easily reverse after a few hours, is it that necessary to use a SL when one can simply just wait it out especially when the PA does reverse the position becomes potentially much more profitable and this is assuming there is no deliberate "stop-hunting" practices being undertaken.

And what makes it inherently even more difficult is that market dynamics can change. A ranging market can suddenly become a trending one and if one decided not to SL and wait it out all of sudden could find him/herself in huge losses. On the the other hand, a trending market can all of sudden stop trending with PA just bouncing off S/R lines right after one has taken the SL and exited the positions and one ends up kicking him/herself for exiting the position early especially when the position later turns profitable if he/she had stayed in the position.

And the problem is you never know. You never know what the future can bring. And this is why I find exit whether it's SL or TP is much harder to work with than entry because entry is based on the present; it's a decision that you make according to what you see NOW and the PAST, what the indicator is showing you, what the past experience is telling you, what are the other currency pairs are doing, where the price is relative to past prices and etc., and based on that you make the decision whether to enter the trade or stay out. But exiting is based on what you think is going to happen in the future, whether it's SL or TP and that's what determines our potential profit, whether it's positive or negative and by how much. If you SL too soon, then you have unnecessary loss. If you SL too late, you have a unmanageable loss. If you TP too soon, you forego potentially good profit. If you TP too late, you lost profit that once belonged to you. You can potentially have bad entries, but with good exits, you can still salvage the position with good SL and even make profits with good TP. But if you have bad exits, no matter how good of the price that you entered the trade at, you will have losses sometimes big losses.
Make your losses in demo. Earn your profits live.
  • #1,838
  • Apr 30, 2014 1:34am Apr 30, 2014 1:34am
Quoting Slim Buffett
{quote} That may be true but perhaps you should define "stop loss" and your opinion thereof. Is a S/L when you receive a margin call When you wait for days/weeks for a trade to "comeback" then close @ b/e. How is that so great ? And you're not taking into consideration an individuals trading method. Does the trader use (according to balance) a tiny lot size or HUGE lot size ?? Answer all ? Or does the equation not fit to every circumstance? If not then it's invalid !! ??
I define "stop loss" as an order to close a trade at a specific price. Often determined at the same time an order to buy or sell is placed.

A SL being a margin call is not great, agree. Any margin call is not great.

Waiting a period of time for a trade to come back to b.e will not affect profit or loss but it does have equity issues depending on it, and the account size.

I can not comment if it does or does not fit every circumstance, but I am pretty sure it could. I do however know a few specific trading methods/systems that work perfectly fine without a SL (in the traditional sense).

I hope that answers your questions.

There is no reason why deciding the failure point at the same time we decide the entry point is more or less likely to be profitable, the same is true for deciding exits at the point of entry too. It may for some be beneficial to work within that type of structured approach, but the opposite can just as likely be true. To say that using a SL will most likely end up with margin call is an assumption that can also be laid at the door of the SL trader, especially if we base it on past performance of retail traders.
tradewith60
  • #1,839
  • Apr 30, 2014 6:18am Apr 30, 2014 6:18am
Because of the spread, every trade is entered in a state of loss.

One assumes that you have a good reason to expect the trade to go your way when you enter one. ( I usually have three: 1. I enter with the swap, because it is always in favor with the more prosperous currency: 2. I enter with my long term view of where a pair is likely to be two years from now: 3. I enter when the price action is on the right side of the 8 bar moving average.)

One assumes that you have a way of watching an entries that are in loss, to keep them from making your debt load too large, and your margin too small to move comfortably into new trades.

One assumes that you watch many windows instead of just a few, so that you may enter only in the very best of opportunities presented to you.

One assumes that you trade in lot sizes to small to bankrupt you in the foreseeable future. This to give you time to consider reasonable actions to prevent excessive loss.

It is reasonable to think then, that you will do well in this market.

Fixed take profits are almost as inefficient way of trading as fixed stop losses. Why watch a trade move into profit, then back into loss just because it did not meet the arbitrary figure you set ahead of time?

Take your profits when you see them start to slow in growth. The tp is there only to keep your profits with you if you are not available to take them for yourself.
Each time you close a trade in profit, you have an opportunity to look around and take the best opportunity available. Often that is in the trade you just closed, when the ordinary sashay of price in a pair hits the side away from profits and comes back, you can get in. The broker is happy to take his spread, but it is at no cost to you, compared to watching your profits reduce further and further until they go away entirely.

Normally I trade a system built upon the principles I outlined above, but when I see a trade going into profit, I enter a scalper mode. I do not fear whether it is in profit or not -- it already is. I open the close trade window and watch the tick screen: while it goes in my favor I wait patiently, Permitting myself a quiet, dignified, "heeh!" while it does so, and closing the trade on the first genuine indication that it falters.

I take a quick look around, and if some other pair is not clamoring for my amorous attention, I open the trade entry window on the pair I just closed, watching the tick screen, which is usually (If I have judged correctly) still going against my trade, giving me a better, and better price on which to enter. If after a while it still goes the other way, I change into a pending trade mode, and put in a pending trade designed to catch it when it finally does come back.

Now I have exited the scalper mode, and am back in the normal one.

My resultant account history reads like a scalpers would, an extraordinarily successful one. ( I only scalp when I am already successful)

It does require a reasonable balance to be able to do this, I should think though that one can do so on an account reasonably into four figures.

Happy hunting!
  • #1,840
  • Apr 30, 2014 7:55am Apr 30, 2014 7:55am
I feel it's worth mentioning again to avoid any confusion. Letting losers run forever is irresponsible and "hopeful" at best. I don't personally put too much stock in hope, never have. Floating losses have a 3-day expiration date on my end. I cycle my trades at 8PM EST (when a new day starts) so any floating loss is only subject to 3 days worth of change. The only way I'll book a floating loss early is if it hits a certain percentage of my equity within that 3-day period (really bad trade). Slim is right, about size. As I mentioned before, we all have a "maximum size" relative to our account balances. The only difference, realistically, between the guy who's trading his max size in one pair and myself is that I'm doing it across 28 pairs. Positive and negative correlations that occur naturally in the market simply alleviate the absolute necessity for a stop loss. Today's good trades are tomorrows bad trades and vice versa. I started with 1K years ago, despite the fact that I maintained a large balance, I still played it safe. As time went on, I got used to holding "debt" (floating losses) and my balance/equity increased, I incremented my size.

For me, the only real downside to the way I trade is if I ever want to be completely out of the market, my debt load has to be as close to $0.00 as humanly possible. That hasn't happened in months so basically, I'm always watching; monitoring on the phone while I'm out and about, at my desk from 8-5, etc. I took a liking to the method quickly because it made me feel like I was doing "more work". I've never been much of a coder, or the kinda guy who asks people to do it for me so the manual aspect of it is appealing.
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