mobinz
01-02-2023 21:53,
There is no absolutely perfect money-management tool in futures trading, though options on futures does limit your risk of loss to the amount paid for the option. Purchasing options does have its disadvantages, however, and that I will not go into that in this feature. What I will concentrate upon in this eduional feature is the positioning of protective stops (a sell stop if you are going long plus also a buy stop if you are going brief ) in futures trading. Protective stops are not a perfect money-management tool, however they are extremely powerful in helping solve a few of the elements of futures trading.
Before I talk about the benefits of utilizing protective stops, I wish to go over a disadvantage about which lots of long-time traders are totally aware: Floor traders in the pits for stops. This is a true phenomenon where local floor traders (people who trade for their own account) think they know where most of the resting buy or sell stops are loed, and then attempt to push prices into those stops, set them off, and then let the corresponding price move run its course, only then take profits on that move along with also the market price then yields to close levels seen before traders went gunning for the stops. This action by floor traders is not illegal or unethical--it is only part of futures trading. These floor traders have to pay a lot of cash (or their host pays their charges ) to trade in the trading pits on the market floor. They do have a few advantages over traders and, importantly, they provide the needed market liquidity which most traders and hedgers appreciate.
Floor traders gunning for stops is more an art than science, as market conditions have to be just right for their attempts to repay. For floor traders to drive a market in their own direction that is desired, outside fundamental facets need to be about in equilibrium rather than having an influence on market prices. As an instance, any flooring traders gunning for sell stops only underneath the current market price will not get the work done when there were a bullish fundamental development that would pushes prices higher. Bear in mind, no one set of traders--not floor traders--can affect market prices much or for long time.
Additionally, sometimes floor traders think they know where stops are loed, and when they push a market and try to induce a bigger price movement, they do not find the stops and then they are forced to cover their transactions in a loss.
A longtime friend of mine and former Chicago Board of Trade grain flooring trader, John Kleist-*now a highly respected grain and livestock market analysttold me the following about sailors gunning for stops: Back in the 1970s and most of the 1980s were really the'last hurrah' for sailors attempting to gun stops. And it basically was from the 1990s when greater (and more translucent ) communiion allowed important news to filter'down' to the pits, rather than'up' from the trading floor. Locals gunning for stops is more successful in illiquid trading pits, like the hogs or bellies--and much less powerful in wheat and soybeans, and very difficult from the corn pit. Gunning for stops has been substituted by sailors coat-tailing the commodity capital and exaggerating price moves. Perhaps that's the same effect but done a different way. Stops have to be relatively nearby current prices--i.e. support/resistance areas generally utilized as'people' prevent areas, if the locals must be effective. And, of course, if nearby major moving averages in the case of their capital.
Alright, on to the benefits of futures traders using protective buy and sell stops. Like I mentioned above, the major benefit of using protective stops is that--before you commence the trade--you've got a pretty good idea of where you will be getting out of the transaction if it is a loser. If your trade becomes a winner and profits begin to accrue, you may choose to employ trailing stops, whereby you adjust your protective stop to help you lock in a profit if the market turn from the own position.
On specifically where to put your protective stop upon entering a trading position, one of the most popular and effective methods is to find a support or resistance area that's inside your loss parameter for that particular trade. Here's an example: A trader decides to go corn stocks and he doesn't want to lose more than $250 per contract if the transaction turns out to be a loser. He must look for a support level that below the market price, and then place his sell stop just below that service level.
I generally use the above formula when I put my protective stops. But, I know that the local floor traders also know where it would be logical for traders to put their protective stops. So, I will tweak my cease positioning a bit to signify this. By way of instance, there's a good support level that's in my parameter and if I choose to go corn, I will set perhaps a few cents stop below that support level. My thinking is that most other traders would set their protective stops about a penny below that good support, and when flooring traders were planning to gun for stops, then they may not be able to hit mine when it is a few cents below the good support level. The disadvantage to this theory is that your stop may be hit anyway, if there were a lot of stop triggered above my stop and pushed prices lower. Additionally, my losing trade would be approximately $100 or $150 steeper per contract compared to when I had not tweaked my stop.
Only rarely will I call my broker and modify the position of a protective stop in a transaction in which I am under water--which means it is a losing trade in the time. That will defeat the aim of creating your decision on how much of a loss you will absorb BEFORE the trade is made by you and therefore are during a trade in the heat of conflict. On winning transactions that I have going, I could call my broker every day and tighten a protective stop, if the market is moving.
https://www.nigeriaforextrading.com/trading-discussion/93-big-bucks.html
Jim Wyckoff
http://www.tradingeduion.com/default.asp?Code=TE_ACF
Before I talk about the benefits of utilizing protective stops, I wish to go over a disadvantage about which lots of long-time traders are totally aware: Floor traders in the pits for stops. This is a true phenomenon where local floor traders (people who trade for their own account) think they know where most of the resting buy or sell stops are loed, and then attempt to push prices into those stops, set them off, and then let the corresponding price move run its course, only then take profits on that move along with also the market price then yields to close levels seen before traders went gunning for the stops. This action by floor traders is not illegal or unethical--it is only part of futures trading. These floor traders have to pay a lot of cash (or their host pays their charges ) to trade in the trading pits on the market floor. They do have a few advantages over traders and, importantly, they provide the needed market liquidity which most traders and hedgers appreciate.
Floor traders gunning for stops is more an art than science, as market conditions have to be just right for their attempts to repay. For floor traders to drive a market in their own direction that is desired, outside fundamental facets need to be about in equilibrium rather than having an influence on market prices. As an instance, any flooring traders gunning for sell stops only underneath the current market price will not get the work done when there were a bullish fundamental development that would pushes prices higher. Bear in mind, no one set of traders--not floor traders--can affect market prices much or for long time.
Additionally, sometimes floor traders think they know where stops are loed, and when they push a market and try to induce a bigger price movement, they do not find the stops and then they are forced to cover their transactions in a loss.
A longtime friend of mine and former Chicago Board of Trade grain flooring trader, John Kleist-*now a highly respected grain and livestock market analysttold me the following about sailors gunning for stops: Back in the 1970s and most of the 1980s were really the'last hurrah' for sailors attempting to gun stops. And it basically was from the 1990s when greater (and more translucent ) communiion allowed important news to filter'down' to the pits, rather than'up' from the trading floor. Locals gunning for stops is more successful in illiquid trading pits, like the hogs or bellies--and much less powerful in wheat and soybeans, and very difficult from the corn pit. Gunning for stops has been substituted by sailors coat-tailing the commodity capital and exaggerating price moves. Perhaps that's the same effect but done a different way. Stops have to be relatively nearby current prices--i.e. support/resistance areas generally utilized as'people' prevent areas, if the locals must be effective. And, of course, if nearby major moving averages in the case of their capital.
Alright, on to the benefits of futures traders using protective buy and sell stops. Like I mentioned above, the major benefit of using protective stops is that--before you commence the trade--you've got a pretty good idea of where you will be getting out of the transaction if it is a loser. If your trade becomes a winner and profits begin to accrue, you may choose to employ trailing stops, whereby you adjust your protective stop to help you lock in a profit if the market turn from the own position.
On specifically where to put your protective stop upon entering a trading position, one of the most popular and effective methods is to find a support or resistance area that's inside your loss parameter for that particular trade. Here's an example: A trader decides to go corn stocks and he doesn't want to lose more than $250 per contract if the transaction turns out to be a loser. He must look for a support level that below the market price, and then place his sell stop just below that service level.
I generally use the above formula when I put my protective stops. But, I know that the local floor traders also know where it would be logical for traders to put their protective stops. So, I will tweak my cease positioning a bit to signify this. By way of instance, there's a good support level that's in my parameter and if I choose to go corn, I will set perhaps a few cents stop below that support level. My thinking is that most other traders would set their protective stops about a penny below that good support, and when flooring traders were planning to gun for stops, then they may not be able to hit mine when it is a few cents below the good support level. The disadvantage to this theory is that your stop may be hit anyway, if there were a lot of stop triggered above my stop and pushed prices lower. Additionally, my losing trade would be approximately $100 or $150 steeper per contract compared to when I had not tweaked my stop.
Only rarely will I call my broker and modify the position of a protective stop in a transaction in which I am under water--which means it is a losing trade in the time. That will defeat the aim of creating your decision on how much of a loss you will absorb BEFORE the trade is made by you and therefore are during a trade in the heat of conflict. On winning transactions that I have going, I could call my broker every day and tighten a protective stop, if the market is moving.
https://www.nigeriaforextrading.com/trading-discussion/93-big-bucks.html
Jim Wyckoff
http://www.tradingeduion.com/default.asp?Code=TE_ACF