Monday, 16 December 2013

Trading Without Stops!

Long time readers of the blog and students know that I advocate exiting a trade when the trade tells me to exit not some arbitrary stop. I advocate having a drop dead stop as a "safety net". Using normal stops, for me, has been a losing strategy. You are not only betting on direction but also betting, unnecessarily, that a nearby price will not be hit before the direction you are betting on happens. It only needs one big enough order to make a blip that elects a stop.

My risk management tool is your entry price and entry size and then doubling down. My size has to fit the distance of my drop dead stop multiplied by the number of contracts I may have on after doubling down "x" number of times. The drop dead stop and the "x" is defines in my trading plan after testing.

Today's pic is an example of what I mean. I was long the Bund at 140.29 for a bounce from oversold (outside in trade) that didn't happen immediately. I doubled down at 140.20 and looked to scratch after I saw that the trend had changed.  My drop dead stop was more than 25 ticks below the low the trade actually made.

Your trade plan could be a little different. For example, look for profit only after the initial entry but look to scratch if you have to double down. Backtesting will show how this can be profitable if the right metrics are chosen.


  1. Hi EL,

    From your teaching on the blog, and the charts of your daily trade, you're apparently trading one market at a time. On the hand, you do not always trade the same market. Today's post is about the Bund, but more frequently it's ES, 6E, or DAX. Does this mean you monitor multiple markets, and then pick one market that fits best your "sweet spot" for the day? Is understanding correct?

  2. Sarah, I hybrid trade 6 markets at the moment and activate the algo when I get an alert or see a picture developing. I do this for a couple of hours a day and fully algo trade as well. I also do quite a lot of options strategies. The technology has allowed me a lot of diversification without being tied to my workstation 24/7