I've never sold a stock, at a lower price than I purchased it, unless something changed about the company or prospects, for the worse.

That is, all else equal, if I liked a company at $10, I love it at $5.

Ive always liked the concept of flexibility in all aspects of trading..including stops...Ive set hard stops only to change them as the trade develops more as a function of volume within intraday patterns. Daytrading is as much trading against the obvious or what traders see on intraday patterns. I guess what I mean is a 'fast move, from failed moves' theory. Utilizing where you think most newer traders would place a stop, and trade against that. For example, cup and handle patterns are brilliant to trade against. Every newbie to IBD can see them, and trading against that pattern has been golden. Also, not every trader is as skilled as you are...and without the ability to employ your more complex option strategies their number one goal should be preservation of capital coupled with a low number of trades into high probability setups. I know that I am not as skilled a trader as you, but I think I compensate for that by understanding my weaknesses and utilizing a style that plays to my strengths. Maybe that is a case for not trading at all as you say, but there is something to be said for simplistic trading which can be difficult in its own right. My number of trades are direct correlation to the number of setups I see. In essence, when playing poker and at a 'good' table you should play more and not less. I loathe profit targets moreso than stops because they see u lessening your aggression when it should be increased. At least the stop removes you from a trade that isnt working shorter term to focus elsewhere and save emotional capital. Congrats on a fantastic January! God Bless!

Good stuff. There is art to trading, and many ways to be successful. I know of many very successful traders who use hard stops. To each there own. I like to hear of different methods, even though many, or most, do not fit my style. Like art, you need to find you own voice.

The nice thing is that there is direct feedback that does not lie, and that is the bottom line. Traders can be thankful for that.

Jesse Livermore used stops...

I think there are a bunch of smart traders out there that know their limitations. Thats part of being a smart trader I guess. Knowing ones limitations might mean that one knows that emotion is the enemy. We're not always in control even thought we'd like to think we are. Thus, stops remove the emotion and eliminates the risk of this particular limitation. Thats a good thing. Hardly a reason to tell someone that they shouldn't be trading at all.

I'll buy that. Good point

What do you say to professional traders like Todd Harrison, 20 yrs on WSt, having traded billions, and use stops?

Sorry I have to approve non-registered comments so that's why it didn't show up immediately.

Andy Swan

I read Fly's stuff, it was decent, but I can say 100% that he will probably blow out one day. It is very easy to see someone who will eventually blow out, maybe not today, maybe not years from now, but if he stays in the game enough, he will. You cannot take an egoic attitude, and an averaging losses viewpoint, and not eventually be in some position that you never imagined. Stops are useful like stop signs on the street are useful. If everyone was able to pay attention, then stop signs would not be all that useful because people would probably be aware of what cars are coming etc. and adapt accordingly. But people do not always pay attention, and therefore, stop signs are useful. It reminds me a bit of a Dutch deal where they removed all the road signs for a few miles of highway as a test. People ended up driving much safer. But anyways that is beside the point. I have found stops are extremely useful when intraday trading e-mini futures. Like you said, there is a leverage element to that, but there is also a price that I know I am wrong at, and if the market trades through that price, I would rather have the half point of slippage that a stop entails then trying to shift click the market as it runs away from me.

I read Minyanville regularly. Harrison uses stops all the time. Purely because it removes emotion. Which basically ties in with number 2. He doesnt trust his future self I guess. I dont either. Thats why i use them as well.

Cool

yes. indeed.

What then do u say to traders like Todd Harrison, 20 yrs trading billions on Wall St, that still use stops? Not sure i get it. Thanx.

Sure stops are a part of basic money management, especially when trading stocks. When using options, maybe they are not so much a part of money management. I did not see in money management 101 where one must have an absolute defined maximum loss in order for it to be considered "money management."

Many new traders, along with being wrong about the direction, often do not know how to take a loss. Thus, they sit and watch their large losers overwhelm their small winners. Options certainly force traders to accept losses through time decay, volatility crushes, and expiration. Stops do the same.

As for your example of when a stop is better than an alert (when did that condition get added?) lets assume a hypothetical system with a positive expectancy. With stops in force (could be time stops, could be percentage based) the system trades 200 times a year. With no stops in force, it trades 100 times a year. As expectancy * opportunity = profits, the system with stops in place will produce a higher return.

Another example...I work with no access to a trading platform, 8-5. Alerts do me no good.

Good discussion...

Option spreads PROFIT from vol crush, time decay (theta) and expiration.

Agree to disagree...gave up stops a few years ago in favor of alerts but mostly just better pos management and a switch to almost pure options selling :)

They can certainly profit from those if they are setup correctly ;) I do not trade options very often so I cannot claim I am any good at creating the proper spreads.

Funny, I just started about a year ago using hard stops on all positions when I switched to almost pure mechnical system trading.

I plan to eventually branch out and try some of the strategies on options...then, I'll come knocking on your door....hey, tell me about those spreads? :)

Andy, with all due respect, it seems you are advocating that someone learn how to trade option spreads before they even learn the basics of stops, i.e., money management. Really?

It also seems to me that you have zero understanding of the concept of expectancy and position sizing, both of which require some form of a stop.

Stops are NOT basic money management. They do NOT guarantee a maximum loss. Spreads do. Plus, spreads work when wrong about direction, which 80% of new traders are.

You tell me why a stop is better than an alert....without falling under one of my five scenarios above.

"2. You don’t trust your future-self"

great line!

I use the term "stop" for my mental threshold, but don't actually use the stop tools. Every time I've used real stops, I was pissed off about it! I was once ashamed of not using this "important safety measure", but after reading this post, I feel I'm doing what's right.

Good advice, ovah heah.