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Trading Without a StopLoss

  • #2,541
  • Nov 2, 2014 9:14pm Nov 2, 2014 9:14pm
Quoting muhitalam
{quote} Hello Chicky, It`s great that you earn your wages.Many people can`t do that. Though i am new trader i also try progress slowly. I don`t have any tendency to be rich in one day. In my view Forex is very risky business. Here lot of chance to earn lot also we can loss everything.....what do you think about that?
If you have learned how this whole market works (not just the pa), opportunities will knock at your door and present themselves.

Market barely moved for the week and I just booked 1/3rd of a percent on trades placed few hours ago. This will go on and on and on ......... day after day, week after week. No stress, very little risk, no pa reading or technicals or fundamentals, no predictions, no stop loss, no tp ........ nothing............................ but it took me more than a decade to figure out how to make my book.
The Thief of Wall Street
  • #2,542
  • Nov 2, 2014 9:38pm Nov 2, 2014 9:38pm
Quoting ericnyamu
surely are some of you people sane ? with my 500$ account i will use a stoploss what about you with a $1k account. dont you think you should have a stoploss. Even top bank traders know they have to use a stoploss because they have funds to protect.i think we need a resident psychiatrist here at FF . PLEASE USE A STOPLOSS
There is no end to how many new things one can explore in these markets and keep on improving his/her trading. After finding antidotes of what we initially accept as a basic trading fact, we start challenging even the universal truths. Below is just a food for thought:


1. What is a stop loss?
2. What is the objective of a stop loss?
3. Can this objective be achieved with same level of safety without the help of stop loss?
4. Can there be a technique that not only achieves the objective of a stop loss with same level of safety but also has some additional merits?
5. If yes to 3. above, no need to use stop losses,
6. If yes to 4. above, using stop losses would mean losing opportunities.

You may not agree with me today, but maybe at a later date .......................................... if wise.
The Thief of Wall Street
  • #2,543
  • Nov 2, 2014 10:06pm Nov 2, 2014 10:06pm
Quoting Chicky
{quote} There is no end to how many new things one can explore in these markets and keep on improving his/her trading. After finding antidotes of what we initially accept as a basic trading fact, we start challenging even the universal truths. Below is just a food for thought: 1. What is a stop loss? 2. What is the objective of a stop loss? 3. Can this objective be achieved with same level of safety without the help of stop loss? 4. Can there be a technique that not only achieves the objective of a stop loss with same level of safety but also has...
The only reality of this market.

Inserted Video
The Thief of Wall Street
  • #2,544
  • Nov 3, 2014 1:59am Nov 3, 2014 1:59am
Quoting Chicky
{quote} I mentioned that 2.5000 is limit for the Open End, not that euro will go there. I will be explaining details of option F in several hours. Currently busy with something else.
Thanks Chicky but still struggling with the concept of open end and what relevence it has - what is closed end - zero maybe?

Tell me if I'm being dumb but just trying to understand and maybe add another tool to my toolbox.

Still interested in option F btw - Think it's probably a combination of hedging and utilising carry but love to know your version.
  • #2,545
  • Nov 3, 2014 2:12am Nov 3, 2014 2:12am
Quoting Chicky
{quote} There is no end to how many new things one can explore in these markets and keep on improving his/her trading. After finding antidotes of what we initially accept as a basic trading fact, we start challenging even the universal truths. Below is just a food for thought: 1. What is a stop loss? 2. What is the objective of a stop loss? 3. Can this objective be achieved with same level of safety without the help of stop loss? 4. Can there be a technique that not only achieves the objective of a stop loss with same level of safety but also has...
1. & 2. What is a stop loss?
What they say it is: A stop loss is an excepted safe level of loss which is designed to help preserve capital in case of a poor trading decision or a sudden unexpected turn against your live position.
What it really is: For the great majority of traders (I'd estimate 95-98%) A stop loss is a guarantee that you will lose all of your funds faster than you were hoping. It is a promise to your broker that you will give them all your money within a year or less and that they will continue to recieve new funds from you.

3. & 4. Can the objective of a stop loss be achieved with the same level of safety without the help of stop loss?
Not only can the same level of safety be achieved a much greater level of safety can be expected with much less anxiety during live trading.

Hence: 5. = true & 6. = true
  • #2,546
  • Nov 3, 2014 2:36am Nov 3, 2014 2:36am
Quoting Graviton
{quote} The pleasure is mine. I think you have to trade the way that works for you, of course. If everyone traded the same, there would be no market. For me, hedging works well in markets where I can hedge with different instruments. So, if I think oil is going down, I may short one oil company with large proven oil reserves like an Exxon and go long another oil company that buys most of their oil on the open market for processing like a Valero. Then if oil goes down as I expect, I should make a profit. If something else happens, like a broad market...
There is a very big difference between exiting a position when price goes against you and hedging, especially if you are building millipedes.

It is completely unnecessary to close recent positions at a loss when you can simply follow PA in the prevailing direction during the pullback. Positions not closed at loss will come back to work exponentially in your favor when the trend resumes. By trend I mean monthly bars. Two weeks or so of pullback can lead to dozens of needless closings when all you have to do is get short as the market dictates. Now if we find ourselves in a major trend reversal ( price breaks a monthly high/low) then positions will need to be liquidated as the risk profile suggests.
If you are good at something, never do it for free--Joker
  • #2,547
  • Nov 3, 2014 8:54pm Nov 3, 2014 8:54pm
Quoting stewrigh
{quote} Thanks Chicky but still struggling with the concept of open end and what relevence it has - what is closed end - zero maybe? Tell me if I'm being dumb but just trying to understand and maybe add another tool to my toolbox. Still interested in option F btw - Think it's probably a combination of hedging and utilising carry but love to know your version.
Okay, you are already almost there. Let me explain a little bit more.

Eur/usd is currently at 1.2500, the Closed End for it is 0.0000. It cannot go below 0.0000, but how we know how high can it go? That is why the high end is Open End. Since currency prices are determined with reference to some other currency, let's reverse the the pair to usd/euro. Now usd/eur pair will again have a Close End at 0.0000. That means:

usd/eur = 1/1.2500 = 0.8000 or 8,000 pips
Intrinsic (adjustment for value difference)= 8,000 pips x 1.2500= 10,000 pips or 1.0000
Therefore 1.2500 + 1.0000 = 2.5000 is the limit for Open End of Eur/USD

You may like to recheck this value by comparing eur/usd with usd/chf instead of using synthetic pair of usd/eur.
The Thief of Wall Street
  • #2,548
  • Nov 3, 2014 9:15pm Nov 3, 2014 9:15pm
Quoting GoodOlJoe
{quote} 1. & 2. What is a stop loss? What they say it is: A stop loss is an excepted safe level of loss which is designed to help preserve capital in case of a poor trading decision or a sudden unexpected turn against your live position. What it really is: For the great majority of traders (I'd estimate 95-98%) A stop loss is a guarantee that you will lose all of your funds faster than you were hoping. It is a promise to your broker that you will give them all your money within a year or less and that they will continue to recieve new funds from...
OMG! You know this? Thought I was the only one.
The Thief of Wall Street
  • #2,549
  • Nov 3, 2014 9:24pm Nov 3, 2014 9:24pm
Quoting Chicky
{quote} OMG! You know this? Thought I was the only one.
I hate to admit it but the amount of times I have kept a mental stop loss and an overall feel for the market rather than a too tight SL has made more money for me rather than when I use one! Seriously, when I use one somehow it gets hit before of course going in the direction I had originally thought! Sometimes I think the less we formalize or follow the standard advice (except on money management) the better off we are! I am not saying not take a loss, I am just saying about how it is done and giving a trade room to move!
  • #2,550
  • Nov 3, 2014 9:40pm Nov 3, 2014 9:40pm
Quoting four.owls
{quote} I hate to admit it but the amount of times I have kept a mental stop loss and an overall feel for the market rather than a too tight SL has made more money for me rather than when I use one! Seriously, when I use one somehow it gets hit before of course going in the direction I had originally thought! Sometimes I think the less we formalize or follow the standard advice (except on money management) the better off we are! I am not saying not take a loss, I am just saying about how it is done and giving a trade room to move!
See Four, the point is not to trade without a stop loss for the sake of not having one. One can get wiped out in minutes if there is no stop loss. The point is, if there is a safety net better than a stop loss? Yes, there is ..................and yes there are. Going further, if there is something which is even better than this Safety Net? Yes there is, but I don't know if there are. A holy grail method has no concept of a losing trade. Yes, there will be losses, but no trade ends on a loss. is the best option if we don't want trading rules to change. If you already know the idea or come to know in the future, keep it to yourself.
The Thief of Wall Street
  • #2,551
  • Nov 3, 2014 10:05pm Nov 3, 2014 10:05pm
Quoting Chicky
{quote} See Four, the point is not to trade without a stop loss for the sake of not having one. One can get wiped out in minutes if there is no stop loss. The point is, if there is a safety net better than a stop loss? Yes, there is ..................and yes there are. Going further, if there is something which is even better than this Safety Net? Yes there is, but I don't know if there are. A holy grail method has no concept of a losing trade. Yes, there will be losses, but no trade ends on a loss. is the best option if we don't want trading...
Yes a confluence to help keep either demand or supply surging in is best of course...but unfortunately some trades do end in a small loss for me, and for you too of course. However if a trade doesn't go my way, it is a pretty strong sign (as I set them up very well) that perhaps the opposite is true and my thoughts were an illusion given to me from those who wanted me to see what I wanted to see!
  • #2,552
  • Nov 4, 2014 1:52am Nov 4, 2014 1:52am
Quoting Chicky
{quote} OMG! You know this? Thought I was the only one.
Me too until I read your post
  • #2,553
  • Nov 4, 2014 1:53am Nov 4, 2014 1:53am
Quoting four.owls
{quote} I hate to admit it but the amount of times I have kept a mental stop loss and an overall feel for the market rather than a too tight SL has made more money for me rather than when I use one! Seriously, when I use one somehow it gets hit before of course going in the direction I had originally thought! Sometimes I think the less we formalize or follow the standard advice (except on money management) the better off we are! I am not saying not take a loss, I am just saying about how it is done and giving a trade room to move!
Exactly!
  • #2,554
  • Nov 4, 2014 2:48am Nov 4, 2014 2:48am
Quoting Chicky
{quote} Okay, you are already almost there. Let me explain a little bit more. Eur/usd is currently at 1.2500, the Closed End for it is 0.0000. It cannot go below 0.0000, but how we know how high can it go? That is why the high end is Open End. Since currency prices are determined with reference to some other currency, let's reverse the the pair to usd/euro. Now usd/eur pair will again have a Close End at 0.0000. That means: usd/eur = 1/1.2500 = 0.8000 or 8,000 pips Intrinsic (adjustment for value difference)= 8,000 pips x 1.2500= 10,000 pips or...
Thanks Chicky,

I think there is something in what you are saying but it still eludes me atm - I need to put my thinking cap on and go ''outside the box''
  • #2,555
  • Edited 12:44pm Nov 4, 2014 12:30pm | Edited 12:44pm
Quoting jmn5611
{quote} There is a very big difference between exiting a position when price goes against you and hedging, especially if you are building millipedes. It is completely unnecessary to close recent positions at a loss when you can simply follow PA in the prevailing direction during the pullback. Positions not closed at loss will come back to work exponentially in your favor when the trend resumes. By trend I mean monthly bars. Two weeks or so of pullback can lead to dozens of needless closings when all you have to do is get short as the market dictates....
Love the burnt orange Longhorn by the way.

Let's take a simple example to see if I can understand what you are saying. You enter a long position, it goes 50 pips against you, you enter a short hedge in the same pair. You have now stopped the loss at a -50 pip locked in loss, only you haven't cashed in that loss yet, it is still a floating paper loss.

If you were to just close the trade at the same point with a stop loss or a manual exit, you would lose the same 50 pips. If price turns and goes back up with the hedge, you can close the short hedge position, or keep the long-short offsetting trade pair and enter another long, and continue the long trade with one net long position. If you do nothing, the 50 pip loss is still locked in with the hedge.

If price turns back up after a 50 pip losing stop loss or manual exit, you can re-enter the long trade to be net one long. If you do nothing, the 50 pip loss is still locked in.

The only difference is that in one case you have margin tied up with the long-short hedge, and in the other you have freed up your margin. I simply see no other difference mathematically in these two methods and no mathematical advantage to hedging in the same pair at all.

How is that wrong? Please keep your response simple. It doesn't matter if you have one hedge or 100, the end result is the same. The hedge doesn't prevent the loss. It simply delays taking the loss. In my view, the loss is locked in and must be realized at some point, there is no escaping it.

Cheers,
G
  • #2,556
  • Edited 1:42pm Nov 4, 2014 1:32pm | Edited 1:42pm
I think this became "religious discussion" that there is no one truth. It's a matter of how you trade and what leverage.

Besides using a stoploss or not, I think someone should seriously consider and think about using hedging strategy especially inside an expert if you trade with an expert. What kind of strategies I'm talking about?

1-) One to one hedging strategy:

You open a long in EURUSD at 1.3000 and instead of putting a stoploss at 1.2950 (50 pips) you put a sellstop at 1.2950. What's the difference? Sometimes not sometimes alot.

Case a-) The price drops to 1.2900 and all your indicators and signals show opposite direction. Then you close both positions with 50 pips loss and + additional slippage.

Case b-) The price drops to 1.2930 very sharp and turn back to 1.2980. In this case there are a few options more depending on your strategy.

Case b-1) you close the hedge at 1.2970 and put a stoploss at 1.2950. This would save you one life.

Case b-2) you put a stoploss at 1.2950 when you see 1.2930. So whenever the price moves above 1.2950 you close your hedge.

2-) You open hedge with 1.5 x more lots at 1.2950.

when price is totally against you towards 1.2800 you close your both positions at break even. You may use a similar approach as in 1) by putting hedge stoploss at 1.2950 when the price is at or lower than 1.2930 or you may close hedge with 20 x 1.5 pips loss if the price turns back to 1.2980 level.

There are several methods that could be applied for different scenarios and market conditions.

The most critical question is why you want to use a stoploss or why you don't want to use a stoploss. I guess the answer why someone would not to use a stoploss is not to hit by market volatility. So the question is; is it possible to minimize the impact of market volatility by using hedging strategy or not? Google it, you will find some good stuff.
If u want to be successful, u must respect one rule: Never lie to yourself.
  • #2,557
  • Nov 4, 2014 1:41pm Nov 4, 2014 1:41pm
Quoting Graviton
{quote} Love the burnt orange Longhorn by the way. Let's take a simple example to see if I can understand what you are saying. You enter a long position, it goes 50 pips against you, you enter a short hedge in the same pair. You have now stopped the loss at a -50 pip locked in loss, only you haven't cashed in that loss yet, it is still a floating paper loss. If you were to just close the trade at the same point with a stop loss or a manual exit, you would lose the same 50 pips. If price turns and goes back up with the hedge, you can close the short...
The only time I can envisage a hedge being useful is if you want to lock in some profit in a longer term trend. For instance if you are convinced the trend eill continue and you don't want to close your positive trades you could put on hedges to catch the retrace. But, as always that's easier said than done.
  • #2,558
  • Nov 4, 2014 1:51pm Nov 4, 2014 1:51pm
Quoting aed71
I think this became "religious discussion" that there is no one truth. It's a matter of how you trade and what leverage. Besides using a stoploss or not, I think someone should seriously consider and think about using hedging strategy especially inside an expert if you trade with an expert. What kind of strategies I'm talking about? 1-) One to one hedging strategy: You open a long in EURUSD at 1.3000 and instead of putting a stoploss at 1.2950 (50 pips) you put a sellstop at 1.2950. What's the difference? Sometimes not sometimes alot. Case a-) The...
I don't think I'd use hedging even if it were available to me (U.S. trader subject to FIFO; no hedging), and this is kinda why.

In a trending market (say, for example, a bearish trend), I would be entering short on bounces (with the trend) and buying on dips (against the trend). Why would I want to erode my "with the trend trades" by entering contrarian long positions? So to me, attempting to hedge in a trending market is just counterproductive.

In a ranging market, I want to sell when the pair is at the high end of the range and then buy at the low. I think it's simpler just to fashion a sell order to sell at the top of the range and then fashion a buy order for the bottom of the range. Naturally, I won't capture all the intra-range movement that a good hedging system would capture ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #2,559
  • Nov 4, 2014 1:59pm Nov 4, 2014 1:59pm
Quoting ZebraSquirl
{quote} I don't think I'd use hedging even if it were available to me (U.S. trader subject to FIFO; no hedging), and this is kinda why. In a trending market (say, for example, a bearish trend), I would be entering short on bounces (with the trend) and buying on dips (against the trend). Why would I want to erode my "with the trend trades" by entering contrarian long positions? So to me, attempting to hedge in a trending market is just counterproductive. In a ranging market, I want to sell when the pair is at the high end of the range and then buy...
Like anything else, though, I think that hedging is somewhat of an art form and that there are those who have a knack as to the timing of when to exit positions on one side of the hedge or the other to their maximum advantage (e.g., http://www.forexfactory.com/alirajaie#45 (particularly the TE that ends in 95)).
Fireworks are fun ... as long as you don't blow your fingers off.
  • #2,560
  • Nov 4, 2014 3:16pm Nov 4, 2014 3:16pm
Quoting ZebraSquirl
{quote} I don't think I'd use hedging even if it were available to me (U.S. trader subject to FIFO; no hedging), and this is kinda why. In a trending market (say, for example, a bearish trend), I would be entering short on bounces (with the trend) and buying on dips (against the trend). Why would I want to erode my "with the trend trades" by entering contrarian long positions? So to me, attempting to hedge in a trending market is just counterproductive. In a ranging market, I want to sell when the pair is at the high end of the range and then buy...
You are right, you can only use hedge on non-NFA markets. This is also a big question mark why NFA forces traders to use kinder-garden rules?

Well, as I said before, it's a matter of choice whether to use it or not. It's more comfortable to use it in an expert since it may require many steps to handle the hedging strategy.

If you can be sure about the market trends, of course you don't need to use any stop or hedge but I don't think that someone would guess 100% all up or down trends. You may think that this is the beginning of a trend but than it may turn completely opposite or it may sharply go opposite and again go in the original direction. Hedging may protect you stopping out if you are using stoploss or hedging may protect you if the price goes too much against you (if you don't use stoploss).

Some people cannot decide at what distance to use stops. With hedging it's slightly easier, since it really does not matter if the market goes 50pips 150pips or 250 pips, your loose will be constant (+ additional spread). And you may find a strategy (as I tried to explain in my previous post) (also you could call it "art") to minimize the impact of losses. BUT It does not ALWAYS protects you 100%, I have performed several tests with different strategies, this is a fact for me but it helps is some cases a lot.

As in my previous post 1st example; Instead of loosing 50pips you may loose a-) less pips (20 or 30 depending your strategy) b-) 50pips (all) c-) non (except for spread). It all depends of the market conditions and "probabilities". if you put 50pips stoploss you will definitely loose all 50pips if price hits 1.2950.

Hence it's definitely not the same thing as using stoploss.
If u want to be successful, u must respect one rule: Never lie to yourself.
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