[Day Trading Poll] Are Stop Losses for ****ers???

After reviewing price data from up to 10 days after taking losses on day trades I've made in the past year and a half, I discovered that every single one of my losses would have resulted in a profitable trade had I held onto my losing position for up to 10 days after the buy. That time frame was the maximum amount of time that passed before my unrealized loss would turn profitable from price going up over a maximum of a 10-day period.

All that being said, I've come to the conclusion that Stop Losses are the reason why most day traders are unprofitable. I'm a momentum day trader. On over 75% of my trades, I get the direction right. When I have a loss from getting stopped out, price generally dips down for a moment, stops me out, and then goes up again.

I admittedly think that the phrase "Stop Losses are for ****ers" is borderline insane. However, I think it makes sense if you abide by the following rules:

  1. Only trade stocks of companies that you know really well. Ideally, they have strong fundamentals, which lend themselves to having a high probability of increasing in price over time. Strong fundamentals should include: Meaning, Moat, Solid Management, and a Margin of Safety. If you have no idea what I'm talking about, read Phil Towns book: Rule #1 Investor

  2. Beware of high volatility stocks - Avoid penny stocks or stocks with high volatility. If a stock can go up in value by 100% in a day, it can also go down by that much in a day as well. The last thing you want is to wake up and see that an after-hours news headline caused your stock to crater overnight. Such is the case with penny stocks and biotech stocks

  3. Only trade an amount of money you are willing to lose - This goes without saying, but the longer you hold onto a position, the more risk you are taking that the market will go against you. That being said, you need to size your position relative to an amount you are willing to lose. If you're trading a stock with strong fundamentals and reasonable levels of volatility, it's highly unlikely that a stock will lose more than 50% overnight, or over the course of a few days or weeks. Even during the worst recessions, the market overall has never lost more than 50% in a short-time frame, although it came close with Covid-19, with a 35% retracement that happened over 2 weeks, only to be followed up by a 25% rally over the next 30 days.

    As an example, let's say that you're looking to buy ABC Stock at $20/share, and you don't want to lose more than $1,000. Based on my assumption of a max loss of 50%, the most you'd likely lose in unrealized losses is $500 if you purchased $1,000 worth of shares. That being said, if you're willing to loss $1,000, you can actually buy $2,000 worth of ABC Stock.

  4. The short-term momentum is bullish - This is where multi-time frame analysis comes in. When I day trade. I use a 15M chart to determine the long-term trend. I use a 5M chart to determine momentum, and I use a 1M chart to time my entry. If I'm going to be willing to hold onto losses, I'm also going to want to see a strong bullish trend on the 1H, 4H, and maybe even the Daily chart to feel confident about holding a loser for a few days or weeks.

  5. Bonus: Since index ETF's are rigged to the longside, you could consider trading TQQQ (Nasdaq 3X Leveraged). However, don't hold it for more than a few weeks, as there is a time decay factor that dynamically adjusts price over time. It's very complicated to explain, and I'm not smart enough to explain it, so look it up if you'd like to learn more.
So when do you take profits?
You would take profits based on your risk multiple. However, you would disregard the stop loss portion of the risk multiple. If you're not sure how to position size with risk multiples check out Adam Khoo's videos on YouTube.

Essentially it goes like this: If the most you're willing to lose on a single trade is $100, then your profit target would $200. By having a profit target that is twice the amount of your loss, you can loss 50% of the time and still be a profitable trader. Since we're disregarding the stop loss, we're leaving ourselves open to losing our entire position. Remember though, we're willing to take on that risk if all of the above criteria has been met. If such is the case, it's more likely than not, that price will eventually go up over the next few days or weeks. You'll just have to be patient and wait.

With a $200 profit target, you would stay in the trade until you hit or exceed that goal, then you would sell your position, and rinse and repeat everyday. On days when the trade goes against you, and you're in the red, you can choose to wait a few days or weeks until you're green again, or you can continue trading each day and leaving the losing position alone until it hits break even or turns positive.

In an ideal scenario, you would hit or exceed your profit target 75% of the time or more, while the remaining 25% of the time, you're holding onto unrealized losses until price goes up again.

In Conclusion:
When you boil it all down, what I'm essentially saying is... If you're able to accurately and consistently determine the direction of the market, why take a loss from being prematurely stopped out, just because you misjudged the exact moment of a reversal, when timing the market is so extremely difficult.

In theory, if you're trading a stock that has strong fundamentals, the worse case scenario is that you have to hold onto an unrealized loss for a few days until it inevitably reverses and you're in the green. When you really think about it, taking losses from arbitrary stops as a day trader is more of a reflection on fear and impatience as opposed to risk management. You might think you're managing risk by setting stop losses, but what you're really doing is donating your money to professional traders and hedge fund trading bots.

What are thoughts on this? Please take the poll and comment below. I'd really like to know what the community thinks. I'm going to test out this theory by Paper Trading this strategy over the next 30 days, and report back. You should join me.
 

TrueDepth

Member
VIP
No, you must have a stop. Either your trade is correct or it is not. You have to put the stop in the right place though. I have noticed that when daytrading most of the time, you will get an entry bar, then the stock will go, then come right past the close of that entry bar to stop anyone who put a stop there, then go the direction.

You can't put the stop at your entry. You have to risk that it goes below your entry. OR you can wait for that first pullback, with the risk being it might never pullback and you missed the entry completley.
 

Joshua

Well-known member
VIP
Its OK the price dropped, its just a dip, I'll buy more.

Its OK the price dropped, it'll go back up, I'll wait, this one has "good fundamentals"

Its OK the price dropped, the market is vary volatile right now, it will recover.

Well, the whole economy is bad right now, I'll get my money back when things recover, next year.

I'm still young, I'll just put this one aside for retirement, it'll be back up by when I'm 65.

Why is it still dropping!? Its "The Fed's" fault, all the "programs" and "HFT" are out to get me.

Is it going to go to zero!?!?

It is going to zero, sell sell sell, I need to salvage what little capital I have left.

MARKET FINALLY BOTTOMS
 

KKaiser

Member
VIP
Its OK the price dropped, its just a dip, I'll buy more.

Its OK the price dropped, it'll go back up, I'll wait, this one has "good fundamentals"

Its OK the price dropped, the market is vary volatile right now, it will recover.

Well, the whole economy is bad right now, I'll get my money back when things recover, next year.

I'm still young, I'll just put this one aside for retirement, it'll be back up by when I'm 65.

Why is it still dropping!? Its "The Fed's" fault, all the "programs" and "HFT" are out to get me.

Is it going to go to zero!?!?

It is going to zero, sell sell sell, I need to salvage what little capital I have left.

MARKET FINALLY BOTTOMS
I blew 3 accounts in less than year with this mentality. Finally thinking very serious to leave trading, may be I am not cut for it. Despite knowing all the rules, I can't discipline myself. I tried my best and already dig hole of 30k. The only way to recover is do some gig work (Uber, bar tender, waiter, doormen whatever it takes). Be safe out there.
 

NatalieHollis

New member
No, you must have a stop. Either your trade is correct or it is not. You have to put the stop in the right place though. I have noticed that when daytrading most of the time, you will get an entry bar, then the stock will go, then come right past the close of that entry bar to stop anyone who put a stop there, then go the direction.

You can't put the stop at your entry. You have to risk that it goes below your entry. OR you can wait for that first pullback, with the risk being it might never pullback and you missed the entry completley.
I like that, and I agree. I use TrailingStops and I think I inadvertently use your principle. I start with wider stop to account for bobbling and then as it moves into the positive, I continue to narrow the stop to capture maximum profit.
 

NatalieHollis

New member
After reviewing price data from up to 10 days after taking losses on day trades I've made in the past year and a half, I discovered that every single one of my losses would have resulted in a profitable trade had I held onto my losing position for up to 10 days after the buy. That time frame was the maximum amount of time that passed before my unrealized loss would turn profitable from price going up over a maximum of a 10-day period.

All that being said, I've come to the conclusion that Stop Losses are the reason why most day traders are unprofitable. I'm a momentum day trader. On over 75% of my trades, I get the direction right. When I have a loss from getting stopped out, price generally dips down for a moment, stops me out, and then goes up again.

I admittedly think that the phrase "Stop Losses are for ****ers" is borderline insane. However, I think it makes sense if you abide by the following rules:

  1. Only trade stocks of companies that you know really well. Ideally, they have strong fundamentals, which lend themselves to having a high probability of increasing in price over time. Strong fundamentals should include: Meaning, Moat, Solid Management, and a Margin of Safety. If you have no idea what I'm talking about, read Phil Towns book: Rule #1 Investor

  2. Beware of high volatility stocks - Avoid penny stocks or stocks with high volatility. If a stock can go up in value by 100% in a day, it can also go down by that much in a day as well. The last thing you want is to wake up and see that an after-hours news headline caused your stock to crater overnight. Such is the case with penny stocks and biotech stocks

  3. Only trade an amount of money you are willing to lose - This goes without saying, but the longer you hold onto a position, the more risk you are taking that the market will go against you. That being said, you need to size your position relative to an amount you are willing to lose. If you're trading a stock with strong fundamentals and reasonable levels of volatility, it's highly unlikely that a stock will lose more than 50% overnight, or over the course of a few days or weeks. Even during the worst recessions, the market overall has never lost more than 50% in a short-time frame, although it came close with Covid-19, with a 35% retracement that happened over 2 weeks, only to be followed up by a 25% rally over the next 30 days.

    As an example, let's say that you're looking to buy ABC Stock at $20/share, and you don't want to lose more than $1,000. Based on my assumption of a max loss of 50%, the most you'd likely lose in unrealized losses is $500 if you purchased $1,000 worth of shares. That being said, if you're willing to loss $1,000, you can actually buy $2,000 worth of ABC Stock.

  4. The short-term momentum is bullish - This is where multi-time frame analysis comes in. When I day trade. I use a 15M chart to determine the long-term trend. I use a 5M chart to determine momentum, and I use a 1M chart to time my entry. If I'm going to be willing to hold onto losses, I'm also going to want to see a strong bullish trend on the 1H, 4H, and maybe even the Daily chart to feel confident about holding a loser for a few days or weeks.

  5. Bonus: Since index ETF's are rigged to the longside, you could consider trading TQQQ (Nasdaq 3X Leveraged). However, don't hold it for more than a few weeks, as there is a time decay factor that dynamically adjusts price over time. It's very complicated to explain, and I'm not smart enough to explain it, so look it up if you'd like to learn more.
So when do you take profits?
You would take profits based on your risk multiple. However, you would disregard the stop loss portion of the risk multiple. If you're not sure how to position size with risk multiples check out Adam Khoo's videos on YouTube.

Essentially it goes like this: If the most you're willing to lose on a single trade is $100, then your profit target would $200. By having a profit target that is twice the amount of your loss, you can loss 50% of the time and still be a profitable trader. Since we're disregarding the stop loss, we're leaving ourselves open to losing our entire position. Remember though, we're willing to take on that risk if all of the above criteria has been met. If such is the case, it's more likely than not, that price will eventually go up over the next few days or weeks. You'll just have to be patient and wait.

With a $200 profit target, you would stay in the trade until you hit or exceed that goal, then you would sell your position, and rinse and repeat everyday. On days when the trade goes against you, and you're in the red, you can choose to wait a few days or weeks until you're green again, or you can continue trading each day and leaving the losing position alone until it hits break even or turns positive.

In an ideal scenario, you would hit or exceed your profit target 75% of the time or more, while the remaining 25% of the time, you're holding onto unrealized losses until price goes up again.

In Conclusion:
When you boil it all down, what I'm essentially saying is... If you're able to accurately and consistently determine the direction of the market, why take a loss from being prematurely stopped out, just because you misjudged the exact moment of a reversal, when timing the market is so extremely difficult.

In theory, if you're trading a stock that has strong fundamentals, the worse case scenario is that you have to hold onto an unrealized loss for a few days until it inevitably reverses and you're in the green. When you really think about it, taking losses from arbitrary stops as a day trader is more of a reflection on fear and impatience as opposed to risk management. You might think you're managing risk by setting stop losses, but what you're really doing is donating your money to professional traders and hedge fund trading bots.

What are thoughts on this? Please take the poll and comment below. I'd really like to know what the community thinks. I'm going to test out this theory by Paper Trading this strategy over the next 30 days, and report back. You should join me.
Too much 20/20 hindsight... if you knew THEN that it would recover in ten days, you wouldn't need a stop at all. And you'd be a gazillionaire.
 

NatalieHollis

New member
I blew 3 accounts in less than year with this mentality. Finally thinking very serious to leave trading, may be I am not cut for it. Despite knowing all the rules, I can't discipline myself. I tried my best and already dig hole of 30k. The only way to recover is do some gig work (Uber, bar tender, waiter, doormen whatever it takes). Be safe out there.
I did too, just once, but a doozy. I vowed I would not throw even one good penny after bad until I proved I could double my money live paper trading, which I did every day just as seriously as if I was trading real $$. It took almost a year, with multiple furious account resets, but after I found UseThinkScript and layered numerous Studies that work for me, I started to improve my W/L ratio -- I guard my best studies with my LIFE!! The REAL keys to my turnaround though, was shifting my mentality from "make money" to "don't lose money" and also, when, quite by accident, I found TrailingStopBuys, which I now use religiously with TrailingStopSells for option day trading (ToS). Not many people use them, but it works for me and I completely flipped my 15/85 ratio to 85/15 in a month.

If you enjoy it, I say, "Keep trying!" ... just don't waste real money on the adventure. ;)
 

crazyturtle

New member
My 2 cents when it comes to placing Stop Losses.
At around a strong resistance/support which also can get violated briefly to kick out the weak hands, most if not all day traders, who use Stop Losses use hard Stop Losses. If one is scaling out of the profit, why not scale-out the Stop Loss; use a 3-tier Stop Loss approach, 1/3 position & 1/3 position & 1/3 position from the Entry and space the 1/3's according to volatility. If the dip kicks you out of 1/3 position when the trend continues, you will still have 2/3 of the original position and so on. If the drop kicks you out altogether, it is more than a dip, and wait for another opportunity. Tiering the Stop Loss will let your trade work longer while saving you money because you do not put the entire position in the broader Stop Loss. I hope it helps. Some platforms will allow you to make a tiered Stop Loss.
 

NatalieHollis

New member
My 2 cents when it comes to placing Stop Losses.
At around a strong resistance/support which also can get violated briefly to kick out the weak hands, most if not all day traders, who use Stop Losses use hard Stop Losses. If one is scaling out of the profit, why not scale-out the Stop Loss; use a 3-tier Stop Loss approach, 1/3 position & 1/3 position & 1/3 position from the Entry and space the 1/3's according to volatility. If the dip kicks you out of 1/3 position when the trend continues, you will still have 2/3 of the original position and so on. If the drop kicks you out altogether, it is more than a dip, and wait for another opportunity. Tiering the Stop Loss will let your trade work longer while saving you money because you do not put the entire position in the broader Stop Loss. I hope it helps. Some platforms will allow you to make a tiered Stop Loss.
I usually start with 2 for the same reason - to preserve 1/2 if it dips. If both positions make it past any dip, I select the best exit trade of the 2 and combine them into 1, which helps to manage a speedy exit. As soon as the profit begins to stall I push the TrailingStop closer and closer to the Mark price so that the next dip/bobble will stop me out in the +$. --- Your post reminds me that I should go back to using 3 (y)-- using 2 is just me being lazy, which is really dumb since 60-75% of my daily profit comes from trades set up in the pre-market when I have plenty of time to set up all 3, so thanks for that.

TMYK: In ToS, tiered stops are created by clicking "Duplicate Order" and changing the stop for each tier.
 

Mr_Wheeler

Active member
it's better to exit on your terms than to make the market make you close on it's terms. I would rather accept getting out with a 5 dollar loss, than to hope & pray that i will break even.

How much is the stress worth to you? That 8 dollar loss is better than hoping,waiting, hoping to only find that you're now 30 dollars down. Now you're 4x down what you could have chosen to get out at.


Is your time and mental state worth less than the tiny sum of money? I held, and held my $ETHE for months. Was down up to 1000 dollars in losses, it took 6 months but I broke even eventually. I could have gotten out a 8 bucks loss & avoid a lot of stress, but I didn't.
 

graf

New member
I agree with all of you. For day trading (scalping) I just use mental stops . Whatever your heart and account can handle. In and out quickly and follow the trend. They are actually hunting for stop losses..
 

traderrobb

New member
I guess you could make the argument that most trades will work out on a long enough time line but do you really want to tie up your capital indefinitely while you wait for a trade to work out? Personally I'd rather take the loss and move on.
 

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