RedlionTrader

I wanted to write a quick note about Stops.  Now that we are tracking our trades real-time you can see how four traders trading the same symbol on the same call can generate five different results.  We all get slightly different fills, we trade different sizes, have different brokers, styles, personalities, computers, screens.. etc..   These are some of the factors just on the fills!  Then there is the trade management piece, the stops and the exits.. It is impossible for us all to match up exactly to the results in the portfolios.  Some of us are consistently beating the results, hopefully none of us are consistently below.  For the most part I take almost all of Tom’s calls except the futures which I am not set up to trade.  The trades in the portfolio pretty well match my personal entries and exits.

Make no mistake, you are trading your account.  You are in control of your exit and entry and which trade you take.  We have the privilege of trading alongside Tom and learning through experience how a great trader trades, but it is us who controls our own results and must develop our own trading styles, that like Tom, becomes second nature.

Stops:

Yesterday near the close we traded short and both BGZ and DXD were mentioned.  I entered DXD, I think most of the room entered BGZ with Tom.  On the close Tom moved the stops to breakeven which was 35.11 at the time.   I was busy managing my DXD trade, I thought we were going 50% short when the call came for 10%.  I was already positioned and now needed to dump 40% which I did and made a couple of hundred dollars.  Thank you.  When things were settled I looked in on the BGZ trade and noticed that my afterhours candle on BGZ did indeed have a tail that spiked through Tom’s stop.   DXD didn’t spike down like that on the close, and they usually match up pretty well so I went to the time and sale window:

Sure enough nestled in the trades was a 300 share trade at 35.09 and 35.10 sandwiched between 35.20’s.  I am not sure this triggered any stops, it doesn’t look like it because we should have seen a slew of 35.11 trades go by, but it did draw the tail on the chart and  to the point, you can’t always trust what you see.

Different platforms have different data feeds and tick filters.  If you ever looked at raw tick data you might never want to trade, there are prices all over the place that get reported out of time sequence, you need to trust that the report initiator encodes the data correctly and that your data service can process the data correctly.  A misprint or bad price can ruin a good trade.

How do you protect yourself?  You need to develop your own stop strategy and rules and learn how stops work.  Did you know that NASDAQ stops are triggered on the bid and not on an actual trade?  So if you have a regular stop, not a stop limit and  all the bids disappear, your market order will be placed at any price, which could be miles away from your stop price. 

My Tradestation allows me to filter my stops.  I set it to  enter the trade after a certain number of trades at or below the stop price.  This prevents a bad print from taking me out.  Often if I only have a couple of trades going on I set price alarms on my system and trade the stops by hand.  I usually use a 1 minute close to trigger the stop.  I wait for the current violating 1 minute bar to close.  If it closes below the stop, I trade out, if it bounces back up I might still trade out at a better price or let it run until the next violation.

This brings us to the DUG trade yesterday that had a 1% trailing stop.  I was in DUG yesterday in my ETrade account and my trailing 1% didn’t trigger when my charts 1% level was clearly showing the 1% level hit.  I think I must have moved to 1% after the intraday high was hit in my Etrade account (the charts on LiveCharts are from Tradestation).  Remember when you enter a trailing stop it starts trailing from the time you entered.  The 1% trailing stop on my charts yesterday were trailing from the opening which means they included the high of the day and that set the stops at 16.65 (my Etrade was at 16.63).  This is not my point except to say “see even amongst myself trades don’t agree!”  I want to look at the price action around the 1% trailing.  DUG actually bounced twice right on the 1% line.  There must have been enough trades here to cause the price to change course.  To avoid being taken out you could have used my 1 minute rule, although you would have been taken out on the second hit, or have placed your stops at 1.1% trailing to avoid the crowd, using them as a shield or just as a rule cheat a penny or two.

There are many ways to trade with stops and each platform offers unique ways of placing stop orders, learn what works best for the symbols you trade, your style and your platform.  The most important rule is “Honor thy stops”, a penny here or there, a bad print or bad fill are minor compared to the loss an undisciplined trader can take by ignoring or not taking stops.  It is cheap money to re-enter and your mind is almost always clearer out of a trade.

Happy Trading

RLT