Determining a proper stop-loss on /ES Futures?

[edgylime]

Hi all, I am new to trading futures, specifically /ES, and I am struggling to set proper stop losses. I have tried using ATR to determine stop size but consistently I have been stopped out by pullbacks right before a big move. If anyone has any recommendations to better choose good stop sizes that would be appreciated! More info about my setup if it is helpful. Main chart is a 5D 1k tick with a 20bar ATR. Thanks!

 

[madeinnyc]

I've traded the /ES prior to switching over to the /NQ. Stops can be tricky! A lot of it depends on your risk tolerance. Many people tout risking only 1% to 2% of the account size on any one trade. However, with pullbacks on the /ES, that 1 -2% is too tight and will always stop you out, only to have you see it reverse in the direction you want.....very frustrating to watch!

What worked for me was first developing a process I could fully trust and then employing a risk management system tailored specifically to my own risk tolerance. With that said, if you can't afford to lose x dollars based on risk tolerance, you may be trading the wrong instrument. Many people naively believe that applying what worked in stocks can be transfered over to Futures....which is totally incorrect. Both have different risk profiles. My suggestion is first develop a sound process on a paper account, then apply risk management tools to help mitigate loss BEFORE you attempt to trade live.

 

[edgylime]

I've traded the /ES prior to switching over to the /NQ. Stops can be tricky! A lot of it depends on your risk tolerance. Many people tout risking only 1% to 2% of the account size on any one trade. However, with pullbacks on the /ES, that 1 -2% is too tight and will always stop you out, only to have you see it reverse in the direction you want.....very frustrating to watch!

What worked for me was first developing a process I could fully trust and then employing a risk management system tailored specifically to my own risk tolerance. With that said, if you can't afford to lose x dollars based on risk tolerance, you may be trading the wrong instrument. Many people naively believe that applying what worked in stocks can be transfered over to Futures....which is totally incorrect. Both have different risk profiles. My suggestion is first develop a sound process on a paper account, then apply risk management tools to help mitigate loss BEFORE you attempt to trade live.

Hi madeinnyc. Thanks for the response. I have traded futures in a paper account for the past month and a half or so with solid success. However that was not trading during such volatile times so my stops could be smaller and I was also comfortable with larger stops before my own money was on the line. In terms of risk management I am comfortable and have a cushion to push my stops out farther (currently am using 4 point - 7 point stops depending on volatility). That being said, I was wondering if there was a mathematical approach that would allow me to calculate an optimal stop (hence why I have tried to use ATR thus far). I would like to eliminate my own bias in deciding the size of my stop as much as possible. If you have any input I would appreciate it a ton! thanks for the message.

 

[madeinnyc]

What you'll soon discover is that execution on a live futures account is very different from paper. You'll know what I mean when you try it! In regards to stops, there is no mathematical way to anticipate the wild swings in today's markets to set an optimal stop-loss. There are products out there that do offer improved versions of trailing stops, but I know non currently on TOS beyond the basics. The thing with stops is slippage. In highly volatile markets there's a huge amount of slippage when placing stops. That goes back to having a solid process you can trust...and if you do have a good process, then a mental stop should work fine provided you can also stomach the emotions.

 

[tradebyday]

The best way to shorten up your stop losses is to better your entries. I do not mean this in any rude fashion. You make money on the entry not the exit. So you can tackle this problem in one of 2 ways. (1) You can fully re-evaluate your system for these conditions... as I am sure you have noticed, working trading systems are not built for all conditions. This does not mean you have to change the indicators, patterns, or whatever you use entirely, maybe just change settings, change time frames, sometimes subtle changes make all the difference. (2) Simply change your risk parameters. One thing I do, is wait for a signal, then wait for the next candle to form (I use a 10,000 tick chart, which is like a 5min chart in some ways). Ideally I can enter a trade near the open of the previous candle, taking advantage of entering inside the pullback. Another way to avert risks with your entries is instead of trading the /ES, you trade the /MES, but have a scale in method starting small and then getting bigger on the trade with confirmation you're on the right side of a trade. You do not have to do any of this, but you should definitely think about it.

 

[edgylime]

@tradebyday I have looked at trading /MES but the commission cost becomes to high because I need to scale up the amount of contracts I am using. As for less risk contracts, I have traded /CL in the past and was recommend /NG recently. I definitely think that a scale in method would work best for me, but currently the commission costs make a scale in method harder to deploy effectively. I'll have to revisit a 10k chart on my dashboard. I have used it in the past and it may be something to add again.

 

[tradebyday]

@tradebyday I have looked at trading /MES but the commission cost becomes to high because I need to scale up the amount of contracts I am using. As for less risk contracts, I have traded /CL in the past and was recommend /NG recently. I definitely think that a scale in method would work best for me, but currently the commission costs make a scale in method harder to deploy effectively. I'll have to revisit a 10k chart on my dashboard. I have used it in the past and it may be something to add again.

With the amount of range we have right now, commissions should not be killing your trades, otherwise you're closing out the trades too early. The point of trading the micros instead is to allow runners gain momentum gaining contracts as you go. But say quick reversal and that 1 micro contract is a loser, simply let the trade run its course but don't add to the losses, wait to see if your system tells you to get out (which would be a minimal loss on one micro) or the trade comes all the way back to green where you could then add contracts on the winning side, waiting for your exit again.

 

[edgylime]

With the amount of range we have right now, commissions should not be killing your trades, otherwise you're closing out the trades too early. The point of trading the micros instead is to allow runners gain momentum gaining contracts as you go. But say quick reversal and that 1 micro contract is a loser, simply let the trade run its course but don't add to the losses, wait to see if your system tells you to get out (which would be a minimal loss on one micro) or the trade comes all the way back to green where you could then add contracts on the winning side, waiting for your exit again.

Good point about the ranges. I have not touched considered touching micros since the bull market. Would also give me a good measure of strategy performance.

 

[J007RMC]

I've seen people risk only a percentage of their account's say limited buy in at 10-20% of total account used. Stops what are you willing to risk ie, 5%-10% or 20% stop loss perhaps being consistent with your rules.

 

[lucky]

Setting a stop-loss takes a lot practice. Start small. Trading stock with low-float moves fast. They can jump (up) quickly and bounce (down) quickly.

Example:

You buy a stock say 5.00 and you set stop-loss at 4.50.

It may fill at 4.25.

Stop-loss with big-float is easy to fill. Say you buy AAPL say at 300.00 and you set stop-loss at 270. It will get filled at 270

 

[ms33]

I've traded the /ES prior to switching over to the /NQ. Stops can be tricky! A lot of it depends on your risk tolerance. Many people tout risking only 1% to 2% of the account size on any one trade. However, with pullbacks on the /ES, that 1 -2% is too tight and will always stop you out, only to have you see it reverse in the direction you want.....very frustrating to watch!

What worked for me was first developing a process I could fully trust and then employing a risk management system tailored specifically to my own risk tolerance. With that said, if you can't afford to lose x dollars based on risk tolerance, you may be trading the wrong instrument. Many people naively believe that applying what worked in stocks can be transfered over to Futures....which is totally incorrect. Both have different risk profiles. My suggestion is first develop a sound process on a paper account, then apply risk management tools to help mitigate loss BEFORE you attempt to trade live.

How do the risk profiles of /ES and SPY differ? For most trading sessions they sit right on top of each other.

 

[William74]

Hi all, I am new to trading futures, specifically /ES, and I am struggling to set proper stop losses. I have tried using ATR to determine stop size but consistently I have been stopped out by pullbacks right before a big move. If anyone has any recommendations to better choose good stop sizes that would be appreciated! More info about my setup if it is helpful. Main chart is a 5D 1k tick with a 20bar ATR. Thanks!

I'd suggest look up Bill William's and read some of his material.
His indicators are the alligator, William's fractal, and awesome oscillator.

Entry's and stops are where I have the most challenge. Trends are your friend. Right now entry points and stops will probably be difficult. Look for seasonal patterns for commodities, offer stronger trends. I never risk more than 1% on a trade, ideal entry is usually less.