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Folks:
The argument, as I understand it is mental versus "in-the-market"
stops. Both types of people are using stops. It appears that the point
that is not getting
through is that some people, whether day or position trading, feel or
know that they do not have the temperament to pull the "stop trigger" at
the right time, or do not want to watch the market tick by tick, and,
therefore, need an "automatic" trigger puller, even if some slippage
results. This being the case, can we all agree that stops are good, and
that matching the style (mental versus in-the-market) to personality and
whether one watches the market tick-by-tick is a valid approach, and
that for those who cannot trade without emotion or watch the market
tick-by-tick that bad fills on stops are better than no stops? If so,
then has this issue been resolved? If not, then at the risk of
extending this discussion, I have not seen a valid argument to the
contrary, i.e., that bad fills on in-the-market stops are worse than no
stops or unexecuted mental stops.
Bill
T-Bondtrader wrote:
> Before the glasshouse people throw too many stones, let me clarify my
> position on stops, without I hope adding further to a subject I had
want to
> close, so far as I am concerned.
>
> First and foremost, I trade with stops. I advocate stops as an
essential
> part of trading. I do hope that is clear.
>
> That said, I only have a different view from those who like to place
their
> stop actually in the market at the time they take the trade, because
of the
> way I trade a very particular instrument. For the sake of those who
think
> I have a 'closed mind' or for those who should be wary of my 'rap' or
> consider my attitude 'sucks the big one', let me clarify my trading
style.
>
> This will be short(ish!), but before I start, please appreciate that
just
> because it is my style, does not mean that I am arrogant or that I
consider
> it the only way to trade. I state that because I think that one of
the
> objects of RT is to exchange ideas, concepts, etc. If you choose to
> disagree, that is very much your privilege - as indeed it is to put
your
> opposite or different point of view. But it can be done civilly,
politely
> and factually, can't it?
>
> Also, I am only talking about day trading the bonds, as I have found
that
> instrument.
>
> All my trades have a stop worked out before I place the order. But
that is
> based on the market as it is at that moment. While the stop is
inviolate
> when hit, the actually execution of it will depend on market factors -
but
> the decision has been made! The fact is that my stop rarely gets hit
> because I am usually out well ahead of it, because of the manner of my
> trading. I very frequently have a profit stop, but as a limit order.
>
> When I am in a trade I am watching every tick. I am following the
market
> very carefully against the criteria I use, against my r/r/r, etc. (If
I
> get interrupted and cannot continue for any reason, I come out. I
would
> not leave a stop in the market and hope, as I use a discount broker
for
> very low costs and cannot expect the trade to be followed for me.) Of
> course it is not an infallible method, but it works very well for me.
Now,
> how do you protect against the sudden disaster? The point I was
trying to
> make, but obviously did so badly, was really two-fold.
>
> I have found that the nature of the bonds is such that even on large
> swings, the market stops and stalls enough to get out with maybe an
> uncomfortable, but acceptable loss. It has to be said that from my
own
> trading experience these sort of moves tend to be windfall profits,
rather
> than losses - so when you get the loss you have to stomach it!
>
> The second disaster is the big move in a matter of seconds. These
are
> always at Report times and coupon passes and I am never in the market
at
> those times. The sudden Ruben situation will normally put itself
right
> within a very short time frame. If not, you have to take the loss.
But
> will someone with Trade Station and all sorts of whiz ways of back
testing,
> kindly post the largest recorded move for the bonds, where there was
not a
> stall or breathing spot to have exited on. What is the most the
bonds
> have moved in a day? When was the bonds limit down last? Just
when? I
> have never experienced it!
>
> Now, following on from that. If you have one of these major moves
and
> suppose you have your normal stop in, say 4, 6 or 8 ticks or whatever,
just
> where - with the market moving in 'fast market' conditions is your
stop
> going to get filled. If the market has blown clean through it, where
will
> it stop and let you get filled. Where? Just how much protection is
your
> stop giving you? It is probably only an option which can help in such
a
> situation.
>
> Of course, normal stops get filled very easily - usually in the bonds
at
> that price, on the nose. Fine, if that is how you want to trade, go
for
> it. By the same token, I can get my price for my stop, the way I do
it,
> so I am happy. But on a long stop basis, we are both unhappy. The
market
> goes straight through the stop. You get a lousy fill and I may do the
> same - or not, as the case may be. What is important is that because
you
> are trading the bonds, you know before you start what the average
range is,
> you know the theoretical worst case average - if you sat there and did
> nothing to mitigate the situation from 7.20 to 2.00pm.
>
> Anyway, if my point is not clear in this 'short' essay, then I cannot
do
> more. The point is that I trade with stops - not usually in the
market -
> most of my executions are limit orders and my style has eliminated as
much
> as I can the 'fast market' conditions where, in my view, a stop is
waste
> confidence.
>
> Now, if all that gives offence to someone, I apologise in advance.
If it
> genuinely helps just one person to see what I am getting at and helps
them
> to get more from their trading, then I am very pleased to have taken
the
> time. But now, on a Saturday morning, I have a mass of other things
to
> do. So have a good week-end all.
>
> Bill Eykyn
> www.t-bondtrader.com
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