Saturday, 13 March 2010

Maths in Oz - DDStop

I want set out the stop loss policy I have in this and other posts as there seems to be some clarification needed.

Firstly, for me a "trade" is a multiple of 3 contracts.  Kiki and I trade in multiples of 3 contracts. This is to allow us to scale out but also to go all in and all out if the situation calls for it.

I have a concept called "drop dead stop" (DDStop) which is the most I will want to lose on any one trade ( a trade being 3 contracts).

The usual DDStop is about the length of two range bars of the market I am trading.

For the ES,  I trade 5 tick range bars. So two range bars is 10 ticks. That is $125 per contract or $375 per trade.

For the DowEuro50 its also 5 tick range bars but the maths becomes 300 Euro per contract due to its tick value of 10 Euro.

I adjust this DDStop for each trade to fit the context of the trade. I also do not use the DDStop as an exit mechanism. I usually do not allow my stops to be hit but rather exit on the market's dynamics during the trade. My entries are usually so correct in terms of order flow and momentum, I will bail if I see I read the market wrong, a long time before the stop is hit. New traders need to be wary of this as they can easily be chopped up. The SIM trading is designed to take care of this and you will have learned how to do this because I don't think you can get to CP without it.


  1. Thank you Tom,

    Some guidance on trademanagement whould really be extremely helpful for me and I think lots of others.

    Best Wishes

  2. Just to clarify - do you actually use the theoretical maximum length of two range bars, i.e., always 10 ticks? or just put your stop beneath the last two range bars which more than likely are overlapping and thus result in a tighter stop? Thanks in advance!

  3. Friday was very choppy around 33 ema market.
    Would be nice to see how you handled it and where you had your stops.

    People who want to brainstorm EL techniques in the private chat room, please let me know.

  4. El I just want to take the time to commend you on the effort, energy, and care that you place into your blog. I do not trade using market delta but I have been CP for 10 yrs and trading as my only source of income for the past 5 yrs and I just hope that the readers of the blog realize how fortunate they are to have someone as committed as yourself from which to glean knowledge. I mentor a couple traders with various back grounds as well as with varying levels of skill and it can be quite time consuming. I am glad that you stressed to the blog that a stop isn't there to take you out of the trade but is there for emergency exit. Once a trader learns to focus on context and then seek high probability trades in that particular context along with the confidence to trust their intuition and scratch trades, they will be on their way to CP and the life that they desire and deserve. I am now 35 yrs old and I have trouble figuring what to do with myself since I am finished trading the ES and CL by noon EST. Stay positive, stay focused, and continue to learn from those that do...not those that think they could do. I'll leave you all with a quote that will profoundly impact not only your trading but your life as well.

    Action without study is fatal. Study without action is futile. ~Mary Beard.

  5. First I would like to thank EL for all his hard work as it is a huge help to so many developing traders. My question is for EL or any other trader out there in a similar position as myself. I have been reading the blog, printing charts, etc., following the plan he has set out in the past few posts. What I want to know is what is the cheapest, most effective way to sim trade his set up without paying for MD/MP. Do I need to pay for data since I am only using historical data? What charting package can I use for free? I am not currently trading real money as I want to get cp on paper before I do. I see NT offers free charting, but they don't have the volume breakdown indicator, and the chart settings EL posted a link to I think work in real time only. Any idea how I can sim trade say the past 4 months of the ES and compare my entries and exits to the ones posted each day? Any help is appreciated. Thanks again EL!


  6. ""Stay positive, stay focused, and continue to learn from those that do...not those that think they could do.""

    Anon.. Great quote, very true. Thanks for sharing,


  7. timokrates, why not enable the PM function over at the SC support forum... ;-) .

  8. I have a question on SIM. How do you recommend this? SIM during markets hours or using replay. And if replay is used do u recommend to just put the replay on or specific times, maybe times when you se on the chart that conditions was met? It seems more effective SIMing times when you know conditions are met (33EMA cross) since you get more trading/training than just waiting 2h for conditions to be met but then again you maybe get a bias since you know how it all turned out and the training loses the uncertanty...

  9. I have taken a slightly different approach for stop management.

    For example, I have one setup that I've tested extensively, I've found that over 90% of the winning trades for this setup take between 0-4 ticks of heat, less than 5% of would be winners take more than 6 ticks, but less than 10 (10 is the DDStop i would use based on position sizing to portfolio size). Instead of using the 10 tick stop, I've pulled it in to 5, potentially being stopped out of a couple would be winners comes out ahead (and smooths the equity curve), but my stop becomes a common exit method that way. It can move from a few ticks of heat (fairly common) to stopped in a breath. Obviously this needs to be closely monitored for changing volatility environments, but it's been much more robust to variations than I initially expected it would. I find the initial target can vary much more than the stop with changing volatility.

  10. @Jeff:
    I would recommend you look at Sierra Charts with a free broker feed such as Infinity AT for real time data and a reasonable history of tick data.

    Sierra is one of the few charting applications that has data fields for Bid and Ask, so it does a very nice job with order flow type indicators like EL uses.

    Their Market Profile charts have been a little "primitive" - mainly due to X axis scaling issues. However they are extremely receptive to user requested improvements and their support is outstanding.

    See the thread I started on their support forum titled "Planned TPO Chart Improvements":
    (my user name there is RickR)

    They will be revamping the Market Profile (TPO) charts in the next few months, however the current one is sufficient IMO.

    Ninja, on the other hand does not have the ability to save Bid/Ask data so this causes problems. There is a nice 3rd party MP add-on at a reasonable cost, but it does not save the splits and merges into the next session. You can get free real time data through Mirus and other brokers for Ninja. Not sure about the backfill history and if/when you would have to fund an actual account to continue the receiving the data.

    hope this helps and good luck,

  11. @Jeff:
    here is a screen shot of my Sierra Charts using replay at EL's first trade in the blog.

    Here chart is zoomed out for context and does not show any MP splits/merges.

  12. cleon, the drop dead stop is 2 full range abrs plus a tick but I exit before the stop is hit.
    Jeff, I'm working on a NT solution.
    Anon 14:49, First use SIM replay and then SIM in real time.
    R/R Very nice. I'd love to try it.