Trading reversals and stop losses

[Rob51852]

Hi guys,

I have been having some success trading reversals but I’m not sure if I am exiting too close to my entry price.

At the moment I am looking to get in when a horse has steamed then met resistance with volume building up at the bottom of the range. I have been setting a stop about three ticks below my entry, outside of the trade range.

The stop is manual not mechanical but I am staying disciplined.

The problem is that sometimes the stop gets triggered but the price then shoots out in what would’ve been my favour.

It happened on a race today. I can’t remember the name but the horse steamed in to around 2.4, I laid it, it held for a while then crept in a few more ticks before shooting out to 2.7ish.

Any advice would be appreciated.

Thanks

[jamesg46]

Stick to your rules, take those small losses, if it breaks back above what was previous resistance, which would now have been support then it's a separate indication and a new signal to enter for a potential reversal.

[jamesg46]

There will be traders trading breakouts of support on the back and lay side, there will also be traders trading off of resistance on both the back and lay side, false breakouts are part and parcel of trading like that, holding & hoping isn't a strategy. Just wanted to clarify why my opinion was to stick to your stop loss and look for a new entry. They're separate trades and should be treated as such imo.

[ruthlessimon]

I have been setting a stop about three ticks below my entry

The problem is that sometimes the stop gets triggered but the price then shoots out in what would’ve been my favour.

We've got to be careful with generic stops, because as you've explained, they can cause insidious effects to your longterm expectancy, which won't be seen in day to day trading.

Atm I can't justify a stoploss in any form, I have to run my swings to 00:00 (minimum). For me it's the best longterm option.

I've got massive admiration for the guys who can jump in & out of their swings, & maintain a high overall strike rate. It's a very advanced skill imho, & one I haven't cracked yet - & trust me I've been tryin'

[Kai]

Not many replies so I'll pitch in with my 2 cents.

Trading reversals is arguably the topic that Peter covered the most on Youtube, you've got multiple examples there explained in detail.

At the moment I am looking to get in when a horse has steamed then met resistance with volume building up at the bottom of the range. I have been setting a stop about three ticks below my entry, outside of the trade range.

3 ticks don't mean much on certain price ranges. You can instead try setting a stop loss at a point that, if reached, will reasonably indicate that the trade is wrong (like a confirmed breakout), not at a point determined by the maximum amount of ticks you are willing to lose, if that makes sense. I'm practically quoting Bruce Kovner with that one.

The problem is that sometimes the stop gets triggered but the price then shoots out in what would’ve been my favour.

On volatile price ranges, like in your example from 2.50ish to 3s, even if you open a random position it can eventually shoot out in your favor if you give it enough time, but if you're trying to anticipate a move it's ultimately about making a judgement call and sticking to it.

A different way would be not to try and anticipate anything and only react, if you can read momentum you can try and get involved only after you already get whatever confirmation you're looking for, it may cost a few ticks but it can be a small price to pay if you get it right more often than not. But get on it too late and you'll only end up catching a retracement in the opposite direction, although this can give you an idea about a different trading opportunity as well.

[Archery1969]

Probably has no meaning but I have always set my stops at 23.6% from entry and have take sp set.

[ShaunWhite]

Atm I can't justify a stoploss in any form, I have to run my swings to 00:00 (minimum). For me it's the best longterm option.

Why is it that people take great pains over their entry but have such a casual attitude towards exits? You'd never do the opposite, ie enter almost at random (ie at a given time) and then sweat over the exit.

From my perspective, people often appear to consider opening a position and closing a position as seperate entities with different considerations. Even taking about a 'stop' somehow categorises that bet as somehow different to the opening bet. My approach (albeit auto) doesn't even consider whether or not a position is already open. If it sees a reason to back, it will back, and if it sees a reason to lay, it will lay. That might result in adding to an existing position (up to a limit obv) or reducing it. If at the off there's a significant imbalance between the back bets and the lay bets then I'll green up.

What I'm trying to get across is that the 'exit' as you see it should be considered with exactly the same rigor as the entry. Everytime you click on the ladder it's a straightforward bet on where it will move next. Whether that creates or adds to a position, or reduces or closes one it doesn't really matter.

Probably several years ago now I remember Dallas saying that an interesting training exercise is to obscure the PL column next to the ladder. It really makes you consider each bet in its own right and helps you to break the habit of basing your 'exit' on its proximity to the 'entry' or to the race start time and makes you think about every bet in its own right and for its own reasons.

[ruthlessimon]

Why is it that people take great pains over their entry but have such a casual attitude towards exits? You'd never do the opposite

Because the "reasons to enter" were found by using the exit as a control variable

[ShaunWhite]

Why is it that people take great pains over their entry but have such a casual attitude towards exits? You'd never do the opposite

Because the "reasons to enter" were found by using the exit as a control variable

I just feel the whole concept of 'opening' and 'closing' is misleading because trading is a much more nuanced.

[Rob51852]

Thanks very much for all the responses guys. They've all given me lots to think about.

Kai, how many ticks below the bottom of the traded range would you say a breakout is confirmed?

Shaun, thanks. That makes a lot of sense and is different from the way I've been looking at it.

[ShaunWhite]

Shaun, thanks. That makes a lot of sense and is different from the way I've been looking at it.

Thx. As I intimated I'm not sure where this idea of strictly opening and then closing a 'trade' comes from. If you watch Peter's live trading videos he's building and reducing his position according to his confidence. To try and put that into the context of your question, perhaps you could halve your holding when the price goes -ve 3 ticks and reduce it further if it continues to get worse. Similarly if your initial marker bet starts to look like a good decision you can always add to it. I'm quite happy to admit I'm no great manual trader but the I see a big disconnect between how traders actually operate and how it's perceived by people learning, nothing is a black and white in or out decision, it's about managing your position in line with your confidence.

I'll bow out of this one now because as I said I'm not really in a position to give manual trading advice but from watching Peter's videos and from my experience with fund managers/dealers, that's what I see happening and that's what principals my moderately successful automation uses.

[Kai]

Kai, how many ticks below the bottom of the traded range would you say a breakout is confirmed?

You're maybe missing the point of what I was trying to say, if in your mind an important price point gets breached then you try to react accordingly, if it doesn't you hold your position and nerve if you're comfortable with your staking. If you base all of your decisions on how many ticks you temporarily lose or gain no matter what price range then I think the market will take you for a ride pretty often. Say that one of your positions sits on +2 ticks currently and then you see clear signs that it's a terrible position, why needlessly hold onto that bad position until it hits that -3 stop loss?

Maybe think about it this way, wouldn't ideally the market just love to go further than it should? So that most people hit their stop loss, before quickly turning back? How often do those most aggressive sudden moves snap right back? Just a few random questions you can try asking yourself.

To try and put that into the context of your question, perhaps you could halve your holding when the price goes -ve 3 ticks and reduce it further if it continues to get worse. Similarly if your initial marker bet starts to look like a good decision you can always add to it. I'm quite happy to admit I'm no great manual trader but the I see a big disconnect between how traders actually operate and how it's perceived by people learning, nothing is a black and white in or out decision, it's about managing your position in line with your confidence.

I'll bow out of this one now because as I said I'm not really in a position to give manual trading advice but from watching Peter's videos and from my experience with fund managers/dealers, that's what I see happening and that's what principals my moderately successful automation uses.

I think that's actually very good advice, it points you in the direction of how you can more safely manage your position, and with it manage your risk. That's exactly how I try to manage most positions overall, if it looks good then take some profit and/or add to it, if it doesn't look great then start reducing risk, and if it looks terrible just close asap so that I don't waste any time on a crap position, this frees up my time to look for something else, possibly even reverse the original one.

It's all about making judgement calls on what you think is going on, for fast markets you may need to make many micro-decisions. If you hesitate for whatever reason, it may already be too late, so I understand the need to set up some flat rigid rules. Applying flat rules to all markets and positions doesn't really lead anywhere, but trying something like Shaun suggested is not actually a bad idea in my opinion.

[dm1900]

Wow @ShaunWhite I posted something pretty much identical in message to your original post in this thread, but a couple of hours earlier than it...spooky!

viewtopic.php?p=222508#p222508

[ShaunWhite]

Wow @ShaunWhite I posted something pretty much identical in message to your original post in this thread, but a couple of hours earlier than it...spooky!

viewtopic.php?p=222508#p222508

I saw your post after I did mine and was going to commented on the similarities too.

[Rob51852]

Hi guys,

I just wanted to post back and say thanks again. I’ve got a new mindset now and it seems to be helping. I had my best month ever.

Cheers