I may not do stop losses below entry anymore.

[nmarnson 8]

I seems that it's an accepted practice to set a stop loss at a reasonable level below your entry. This allows for normal price fluctuations.

However, after some trades that went against me today, I'm wondering that maybe it's not the best thing to do. 

Hear this out: On 1000 shares, a 12 cent stop loss is $120 loss. For $120 I can afford 20 stabs of commission fees  in and out.  How many stabs do you think it will take to get in at the right place on the trend where it won’t run back below my entry? I’d say 2 or 3 max. So that's a max loss of $18 before it starts running. And those of you who have $1 commissions, it's only $6. And eventually one of my stabs will be at the right point, and it’ll run, and then use the higher highs-higher lows rule to tell me where to get out. And those that don’t run will stop out with a 25% profit.

My plan is to get in at the right time of course, and as soon as it runs a little, immediately set a stop loss at my entry. If it runs, great. If it comes back to my entry, then I stop out for a $6 loss, and try again when it starts moving. Even if this happens 3 times before it starts running, it's only an $18 loss. And if it goes against me and is clearly not a good trade anymore, well then I only lost $18, not $120, or $200. 

I am not an expert trader yet, and the fact that I'm having red days is 100% something for me to improve on. But I believe this approach will minimize losses overall on bad trades that happen to everyone. 

And this is only with 1000 shares. The more shares you are using, the more there is to lose with a stop loss below entry. 

The only downside is that it's a little more action intensive. I may have to get into a trade 3 times before it starts running. It's more keyboard action.

What are your thoughts? Is it possible to have a world where there are almost no red trades?

Edited July 27, 2018 by nmarnson

[daniel lindegren 27]

Setting a reasonable stop loss is what you should always do, no matter what. The trades that went against you isn't a stop loss problem, it's a strategy problem. You need to get better at picking great set ups that are winners, with good risk to reward.

Do you ever have those trades where you know it's going to go in your direction? Those are the trades you need to be taking.

[nmarnson 8]

13 minutes ago, onosendi said:

Setting a reasonable stop loss is what you should always do, no matter what. The trades that went against you isn't a stop loss problem, it's a strategy problem. You need to get better at picking great set ups that are winners, with good risk to reward.

Do you ever have those trades where you know it's going to go in your direction? Those are the trades you need to be taking.

I do agree. 

[Ohms 1]

I've wondered about this myself, Nathaniel. One thing is for sure: if you go about it in the way that you proposed, your broker will love you. Long time. ❤️ 

That being said, the idea is not without merit. It should work well on certain set-ups; for instance, buying at the break of high/low of the day, when you expect a sharp breakout. However, consider this: most trader try to go as tight as possible in stop-loss and as large as possible in share size. Another approach would be to go smaller in share size and allow for a wider stop, resulting in smaller wins but also fewer losses.

[WilliamH 67]

(nmarnson, Just finished writing this post, and realized it sounds negative. I promise I am not trying to be negative at all, and am only trying to give insight from my personal experience

and the experience of almost every day trader I have known, talked with, watched on youtube or read about in books. I am not trying to disparage your idea at all and LOVE that you are becoming

a day trader, and are so motivated to go against the grain and find something that works for you. I hope this can be an ongoing discussion where we can all learn from, including myself. Hope you reply :)

 

My uncle has golfed his whole life, and when I was younger, I would often visit him.  He would be in the backyard practicing his swing, calling me over,

and telling me he "found the secret" to a perfect golf swing.  After a couple times it turned into a running joke that he always "found the secret" to the perfect

swing, but in reality he never did. . . Because there is no Secret to a perfect . . .  anything.

 

Nmarnson, when I was a new trader a few years back, I focused so much on reversals with strong candle reversal patterns

that had really tight stops of $.01-.$03  which coincided with the actual bottom/top of a reversal candle setup. Basically if it broke and didnt reverse I would get out for the 

small .01-.03 cent loss, and if it reversed as my back testing had indicated I would take huge profits with risk/reward like 20/1 and thus I could make so many losing

trades to find a huge winner. I had spreadsheets and notepads full of numbers.  I looked at charts for hours upon hours days upon days and went back through candles of all different time frames analyzing everything I could.

I was sure I found the "secret to day trading" . . . Reversals with tight stops and let the winners ride up to heaven for continuous profits!!! 

I never posted on a forum like this to share my idea so I never got feedback. My feedback was in the form of disappointment/frustration of $1,000's lost

So lets go over your points

 

So if you have 1,000 shares and stop loss of $.12 you are risking $120. And in your later example you are assuming you are able to exit at exactly your entry

price for a break even trade and only have to pay commission of (I assume) $3.00 for entry and $3.00 for exit for a total of $6.00

 

1. Commission, so if you are paying a flat rate of $3.00 commission that is fantastic for 1,000 shares. For those of us on IB we get $1.00 trade on 100 shares,

but anything over that we pay extra depending on the structure we choose. So no one gets $1.00 trades on 1,000 shares unless you are on some cheap/junk broker like robinhood. In reality on

1,000 shares IB we pay around $5.00 or so for each trade.  Commission doesnt include the fees you have to pay. The fees are fairly small on 1,000 shares

but since you are being exact, you need to include the fees on top of commission.

 

2. Spread, with a strategy such as yours, you will have to pick stocks with a very tight spread of $.01-$.03 that doesnt change much. This is very limiting. Especially if you want to pick stocks that are in play for that day.

On a 1,000 shares, for each penny the spread is you will be down $10. many stocks have spreads of around $.05-.15 and thus you will be instantly down $50-$150, which throws off the plan immediately. So you will be forced to pick stocks with

extremely tight spreads.

 

3. Now here is the real danger. If you are looking to make entries at breakout points, especially if you are seeing buying or selling pressure going in the direction

that you want to jump in with, there can be big gaps up in your favor, or INSTANT gaps that go against you.  . . . You have to accept that gaps go BOTH ways.

Lets just say you are buying at an apex point for a long of a stock that is about to break $40. You see a green buyer at $40.01 so you hit your hotkey

for 1,000 shares on the ask for the break of 40 and get filled at $40.04 because the spread changed the instant you hit your hotkey and price was moving up. So now you got filled at $40.04.

But this was a fakeout, and you bought at the highpoint of this potential apex, and there was some huge hidden seller (which there often can be at a Whole Dollar apex point).

Since you are a slow human compared to an algo computer, you are way behind on reading the time and sales And thus the stock drops $.10 instantly before you

 can get out. You try to get out asap, but because the gap down and increased spread you get filled at $39.93. And thus what you thought was a commission

break/even trade, was actually a commission + fee + -.11/share trade so around -$113 loss or so. This is not even an extreme case. This happens all the time

on stocks that are in play at apex points.

 

4. You also note that it might take only 2-3 entries MAX before a trade goes in you favor. I dont have an argument here other than to say you will learn through

experience this simply isnt true. Someone like Andrew makes it look so easy. But for the majority of us, we get faked out all the time. The charts will be setup

to make the average trader see something where the exact opposite is going to occur. Total fakeout.

 

5. I think if you ask any successful trader they will tell you trading is over 50% psychology and possibly more like 80% psychology.  So we all know to "plan our trade and trade our plan", but in reality this will never happen.

Even the greats like Andrew calls himself out all the time saying "what a garbage trade, Rookie Mistake, I cant believe I did that". Not even he is immune to going of his plan.

When I was first starting out this didnt make any sense to me and I honestly didnt buy into it. I just thought I would trade the charts and my trading plan and nothing else mattered.

Then every Day Traders enemy came to greet me, FOMO, revenge trading, Hulk Trading (RobertH), Averaging Down Losses, HotKey mistakes, desperation trading,

letting losers ride and taking profits before your plan dictates, Deer-in-The-Headlight and many more . . .

None of these trades are part of anyones plan, yet EVERYONE does them. I admit it is crazy. No one plans to fall victim to these, yet EVERYONE does.

 

Please let me know your thoughts on all this and where you agree/disagree as I would love to continue to hear your opinion.

[nmarnson 8]

25 minutes ago, AdventureDogLA said:

(nmarnson, Just finished writing this post, and realized it sounds negative. I promise I am not trying to be negative at all, and am only trying to give insight from my personal experience

and the experience of almost every day trader I have known, talked with, watched on youtube or read about in books. I am not trying to disparage your idea at all and LOVE that you are becoming

a day trader, and are so motivated to go against the grain and find something that works for you. I hope this can be an ongoing discussion where we can all learn from, including myself. Hope you reply :)

 

My uncle has golfed his whole life, and when I was younger, I would often visit him.  He would be in the backyard practicing his swing, calling me over,

and telling me he "found the secret" to a perfect golf swing.  After a couple times it turned into a running joke that he always "found the secret" to the perfect

swing, but in reality he never did. . . Because there is no Secret to a perfect . . .  anything.

 

Nmarnson, when I was a new trader a few years back, I focused so much on reversals with strong candle reversal patterns

that had really tight stops of $.01-.$03  which coincided with the actual bottom/top of a reversal candle setup. Basically if it broke and didnt reverse I would get out for the 

small .01-.03 cent loss, and if it reversed as my back testing had indicated I would take huge profits with risk/reward like 20/1 and thus I could make so many losing

trades to find a huge winner. I had spreadsheets and notepads full of numbers.  I looked at charts for hours upon hours days upon days and went back through candles of all different time frames analyzing everything I could.

I was sure I found the "secret to day trading" . . . Reversals with tight stops and let the winners ride up to heaven for continuous profits!!! 

I never posted on a forum like this to share my idea so I never got feedback. My feedback was in the form of disappointment/frustration of $1,000's lost

So lets go over your points

 

So if you have 1,000 shares and stop loss of $.12 you are risking $120. And in your later example you are assuming you are able to exit at exactly your entry

price for a break even trade and only have to pay commission of (I assume) $3.00 for entry and $3.00 for exit for a total of $6.00

 

1. Commission, so if you are paying a flat rate of $3.00 commission that is fantastic for 1,000 shares. For those of us on IB we get $1.00 trade on 100 shares,

but anything over that we pay extra depending on the structure we choose. So no one gets $1.00 trades on 1,000 shares unless you are on some cheap/junk broker like robinhood. In reality on

1,000 shares IB we pay around $5.00 or so for each trade.  Commission doesnt include the fees you have to pay. The fees are fairly small on 1,000 shares

but since you are being exact, you need to include the fees on top of commission.

 

2. Spread, with a strategy such as yours, you will have to pick stocks with a very tight spread of $.01-$.03 that doesnt change much. This is very limiting. Especially if you want to pick stocks that are in play for that day.

On a 1,000 shares, for each penny the spread is you will be down $10. many stocks have spreads of around $.05-.15 and thus you will be instantly down $50-$150, which throws off the plan immediately. So you will be forced to pick stocks with

extremely tight spreads.

 

3. Now here is the real danger. If you are looking to make entries at breakout points, especially if you are seeing buying or selling pressure going in the direction

that you want to jump in with, there can be big gaps up in your favor, or INSTANT gaps that go against you.  . . . You have to accept that gaps go BOTH ways.

Lets just say you are buying at an apex point for a long of a stock that is about to break $40. You see a green buyer at $40.01 so you hit your hotkey

for 1,000 shares on the ask for the break of 40 and get filled at $40.04 because the spread changed the instant you hit your hotkey and price was moving up. So now you got filled at $40.04.

But this was a fakeout, and you bought at the highpoint of this potential apex, and there was some huge hidden seller (which there often can be at a Whole Dollar apex point).

Since you are a slow human compared to an algo computer, you are way behind on reading the time and sales And thus the stock drops $.10 instantly before you

 can get out. You try to get out asap, but because the gap down and increased spread you get filled at $39.93. And thus what you thought was a commission

break/even trade, was actually a commission + fee + -.11/share trade so around -$113 loss or so. This is not even an extreme case. This happens all the time

on stocks that are in play at apex points.

 

4. You also note that it might take only 2-3 entries MAX before a trade goes in you favor. I dont have an argument here other than to say you will learn through

experience this simply isnt true. Someone like Andrew makes it look so easy. But for the majority of us, we get faked out all the time. The charts will be setup

to make the average trader see something where the exact opposite is going to occur. Total fakeout.

 

5. I think if you ask any successful trader they will tell you trading is over 50% psychology and possibly more like 80% psychology.  So we all know to "plan our trade and trade our plan", but in reality this will never happen.

Even the greats like Andrew calls himself out all the time saying "what a garbage trade, Rookie Mistake, I cant believe I did that". Not even he is immune to going of his plan.

When I was first starting out this didnt make any sense to me and I honestly didnt buy into it. I just thought I would trade the charts and my trading plan and nothing else mattered.

Then every Day Traders enemy came to greet me, FOMO, revenge trading, Hulk Trading (RobertH), Averaging Down Losses, HotKey mistakes, desperation trading,

letting losers ride and taking profits before your plan dictates, Deer-in-The-Headlight and many more . . .

None of these trades are part of anyones plan, yet EVERYONE does them. I admit it is crazy. No one plans to fall victim to these, yet EVERYONE does.

 

Please let me know your thoughts on all this and where you agree/disagree as I would love to continue to hear your opinion.

Very wise post. Honestly I have since ditched this approach, because even if it does save money, it's not worth the headache, and my goal is not to never lose money, it's to be profitable overall. I'm going to focus on the main fundamentals of good trading, and take the normal losses that happen. 

But I did read through, and your points are definitely valid. 

Also agree with regard to the "secret", there is really no secret and no shortcut to experience and mistakes and learning from them. 

Looking forward to this week!

 

[sara 0]

Nathaniel I’m glad you asked this bec it is certainly something a new trader, like me, may be baffled by. It seems like the others are over complicating things at times. Until we come into the realities of trading- and all the emotions it brings. 

Thanks adventurelogLA for your detailed post. So informative. Reading your reply definitely brings the truth of this “game” to light, and the difficulties involved. I certainly have a new understanding for some of the finer details - like slippage, spread, etc. - that can actually make a big difference in the long run.  Most importantly I need to realize that I can dream all I want, but just like the thousands of traders before me, I will not be immune to the roller coaster of emotions that you mentioned and taking precautions is a helluva wiser plan than pretending or wishing I won’t be affected

Always more to learn here!! 

Sara

[Aiman 86]

Hi 😄 I read all the comments but I don't know if you came across this. You definitely know that a stop loss should be technical, (a moving average, previous day high, low of the premarket or anything like that), the reason behind it is because traded pay attention to them, so if traders buy above some moving average, their stop loss will be below it. Now, if the price drops below the MA, a lot of stop losses will be triggered, so there's no point for you to hold, unless you had a better entry than those traders, and you should leave with them, but let's say you set your stoploss randomly, just let's make it 10 cents below your entry, you'll eventually get chopped and stopped out for every small pullback happens especially for a stock in play. I read a post here before about trading management, I was calculating my share sizes according to an excel sheet we've somewhere here, but I think Robert wrote this, the maximum shares you're allowed to take per trade is (your account size devided by your stop loss multiplied by the percentage you're willing to lose) let's say 25000$, your technical stop loss is 0.5 away(a moving average or previous day low + 5 cents at least below it to give it some room )*  1% of the account, you'll be allowed in this case to take only 500 shares, so use this formula and print yourself a sheet with the number of shares you're allowed to take if your stop loss is 10 cents away, 15,20,25,30 and so on, if you want I can post the link here, it's somewhere in the forum :DD . Most importantly is to take trades only if you've a great entry! My win rate improved so much after I got the advice from Robert, Brendon and Peter, (If you miss a good entry then just leave the trade and look for another one or wait for a pullback), a good entry will save you from losing and being stopped out on consolidations.))

Edited July 30, 2018 by Aiman Almansoori

[nassarsyed 82]

Take a lot at my thread over 2 months of trading. My biggest issue is too tight stops and not scaling well. 

Its all about risk to reward. Your stop could be anything as long as you are attempting to make twice as much if right. 

Try a dollar valu stop eg $200 per trade or whatever and than figure your stop from there?