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Thanks for the quote worldbfree, its nice to know there’s somebody else out there that shares my point of view.
For example if you know the possible range of an instrument (ie the DAX range from 11000 to 14500 over the past 5 years (increasing year on year)), and you keep enough in your account to cover that range, why use a stop. It eventually comes back up or down. Am I mad?
Cheers.
Can you help answer these questions from other members on NexusFi?
I trade a system in the Energy markets and I've learned that since my system does not include stops in the backtest then I shouldn't use them unless they're outside the 95% confidence interval. Even then, I only use them if I'm making a flat price trade, because swings tend to be stronger when trading just flat price. You're definitely not mad but if you're a beginner then I would recommend placing them far out just to protect yourself in case of catastrophe. Good luck!
I've heard that a long time ago, in the time of the trading floors, brokers and traders used to 'hunt' for stop orders and because of that a lot of guys that used to be on the floor are hesitant to use them. My experience in talking to seasoned and professional traders however is that they would never consider entering a position without a Stop. Usually not without a Limit either. It seems ridiculous to go into a trade without knowing where you want to get out.
The problem with not setting a stop loss is that the longer you hold a position the more your returns will mimic the market returns. If you think about it, if place a trade at the beginning of the year and close at the year, over that year, your returns will match the market returns. This same principles applies on all time-scales. For example, if you open at the start of the day and close at the end of day then your returns must match the market returns over that period. You may do better due to leverage or if you hold positions short but that is all.
As for systems that do not set a stop loss, if you are able to adjust the leverage then it may work but generally it will give misleading returns. But yes, there is valid concern that over leveraging and improper use of stops is also a primary cause of losses. That is true too.
I'm not sure I understand your point. If you trade a system and you don't have stops, it doesn't mean your returns will mimic market returns. The system should define at which point you exit the position. The last quarter I traded my system I was able beat the market without having any stops.