No stop loss

[TTWSX102]

I read that large institutional traders do not use stop losses because if they did they would move the market. Is this true? If so they must monitor the market constantly. I can see how it would be possible though. I am currently using a trend folowing system and my stops never even come close to being hit as I get an exit signal before then. I would never trade without using stops myself just from a psychological standpoint but can the market really move that far that fast and completely wipe out a large account? With the number of players in forex it seems unlikely.

[MickMason]

Originally posted by TTWSX102
I read that large institutional traders do not use stop losses because if they did they would move the market. Is this true? If so they must monitor the market constantly. I can see how it would be possible though. I am currently using a trend folowing system and my stops never even come close to being hit as I get an exit signal before then. I would never trade without using stops myself just from a psychological standpoint but can the market really move that far that fast and completely wipe out a large account? With the number of players in forex it seems unlikely.

In a ranging market why use stops?

I imagine big institutions could afford to average or use a martingale strategy but then I think about 'Barings Bank' and guess they probably don't. Nick Leeson always claimed that if the bank had supported his open positions they would have made money, the Nikkei did eventually turn.

Thinking outside the box can be profitable as well in my opinion.


Mick

[TheSundanceKid]

Whether or not you use a stop loss (and/or a limit) is at your discretion. However you should consider the consequences and possiblities in doing or not doing so. While you may not want to use a stop loss to exit your position most of the time or even at all, it is always a good idea to place a "disaster" stop loss in the event that the market moves violently against you in a short period of time. I'm continually amazed at how extreme, sudden and unpredictable the market can move sometimes.
Right now I'm testing a system that is based on the 1-min charts, so for me a tight stop loss is a necessity, for as we all know the market can move 30+ pips in a matter of seconds/minutes. I don't always exit my position by getting stopped out though - infact I prefer to close the trade myself at market rate when I wish to exit. However, I also want to protect myself and reduce my risk at some point, or else I certainly would not be profitable. You may also want to consider alternatives to stop losses, such as hedging or averaging/scaling in. Just make sure you limit your risk by some means when the market moves against you - or else you may end up regretting it!

Good Trading,

Sundance

[TheSundanceKid]

Mick,

Did you see that movie with Ewan McGregor, I believe it's called Rogue Trader? It's all about Nick Leeson and the BB scandal. I thought it was great. Just goes to show how insane the markets can make you! You should definitely check it out if you haven't seen it. Maybe you and Auto can get together to watch it?
Wait a minute, that's probably not a good idea!


Sundance

[MickMason]

Hi Sundance

Yup, saw it about 6 times!

The guy seriously lost it but those trades could have worked out for him if only BB had kept sending him margin, and then the earthquake didn't help his positions much when the Nikkei dropped 1000 point! Jeez, can you imagine being long when that happened!

If Barings had closed out all the positions as soon as they discovered the 88888 account, or carried on averaging, they would still be in business today. As it is they waited too long before taking action.

I wonder where the guy is now.....wait a minute....he's not my mate autofx is he

Mick

[TheSundanceKid]

Originally posted by MickMason
I wonder where the guy is now.....wait a minute....he's not my mate autofx is he

LOL, wouldn't be surprized!

The thing that really amazed me about Nick is that he was able keep up that sharade for so long! He's losing millions, yet all the while he's being touted as master trader among his colleagues.
I wouldn't doubt that he could have made money from his position (or at least broke even), had he not been discovered so "soon" (LOL). But you have to consider that he did have the backing of several major financial institutions who trusted and revered him.
In theory, with "unlimited funds", he could have made any/every position he took profitable (eventually) using a martingale type strategy. The thing is Nick must of had some kind of psychological problem. He recovered a couple huge losses previous to the one that "broke the bank", but he continually (habitually) refused to accept his losses and manage his risk responsibly. In the end it got the best of him.
Great true story with many good lessons on what not to do.

Sundance

[MickMason]

Originally posted by TheSundanceKid



The thing that really amazed me about Nick is that he was able keep up that sharade for so long! He's losing millions, yet all the while he's being touted as master trader among his colleagues.

lol, they all thought he was God!

When he made that first loss come good I really felt for the guy and broke out a big fat cigar in celebration, but that one wasn't his fault, didn't that girl Sell instead of Buy? lol, doh, who needs enemies with friends like that! I hate to admit it but I once sold cable while looking at a Swissy chart, funny enough the trade was good so it didn't say much for my tech analysis!!

Looking at Cable and Eur, if someone had sold into this last rally using an averaging system they would now be in big profit. Ok, we all know that's not the way to trade trends but it does go to show it doesn't matter which side of the market you're on. No wonder my hero (Soros) makes so much money!

There's a good film on UK TV tonight, "The man who broke Britain', I've not seen it before but it sounds like a Soros trick to me.....

Mick (short Cable from midnight last night and not been to bed yet )

[buff]

Yes I saw the movie Rogue Trader - good stuff!

There was a scandal here in Australia not that long ago that involved four rogue currency traders that worked for one of Australia's largest banks. They were caught out only because of the losses they were taking, but like Nick Leeson, if they had just hung on a little longer, they would have been right. I am sure we would have never had heard of them if they had been successful and the bank would have been happy with the results. But it wasn't to be, not only did they lose a bucket load, it dragged the bank's share price down also.

A couple of other good trading movies to watch. You can't beat the classic 'Wall Street', but also 'Boiler Room' (I just love Ben Afleck's pep talk to the newbies) and there is a good Aussie movie called 'The Bank'.

Anyway a little off topic, but I do think if you had a bucket load of cash, you could quite easily trade without stops. You may have to endure a bit of mental pain along the way though. Cheers.