How to use money management stops effectively

27 thoughts on “How to use money management stops effectively”

1. New to all this, so please...where can I learn more about the "filtering yors trades" mentioned above. Thx

2. Hi Jeremy...thank you. I really appreciate your help.

3. I am a beginner of this trading world. In several discussions, I read about ATR and Trade Triangles but don't understand what they mean. Can anybody guide me where to go and what link to open to read an article about these? Thank you.

   1. Victor,

      Average True Range is a measurement of volatility. Originally built for the commodity markets, this indicator can be used for equities as well. This study takes the absolute value of highs and lows for a given amount of periods and plots them on a line under the chart. The default for this study is 14 periods. Violent price moments (extreme volatility) could be present when the ATR line is plotted on high levels. Mild price movements (small trading ranges) could be present when the ATR line is plotted on low levels.

      As for the Trade Triangles, you can this link to learn about them http://club.ino.com/trading/marketclub-help-section/flash-charts/trade-triangles/

      Best,
      Jeremy

4. Fabian's comments are interesting. Why is any stop loss setup on futures always going to be exercised. I know from experience that this is true to my considerable personal cost, but why is it, Adam? You may have seen Nasdq go down heaps last night.Would being on a non market maker dealer be a worthwhile answer?
   If so, who?
   Thanks for the great infon for this beginner.
   Ian Ball

5. Thanks Adam.
   I am not sure what you mean by “filtering your trades”. Does that mean only trading on the high-percentage triangles?

   We have done an analysis of the triangle trading system going back two (or more) years on several of the most-traded currency pairs. In our results, the triangles correctly indicate direction about 39% of the time. This is understandable and expected since this is a breakout system and most markets range for about 80% of the time. But the breakout wins should be large enough to cover the false breakout losses. However, they do not. Our analysis showed small but consistent losses over time, even before adding trading costs (commissions, spread, roll, slippage, opportunity costs etc). This assumes the use of no stops in place.

   Testing various stop protocols just highlighted the classic problem. Too tight, and some breakout trades are cancelled before they can get going. Too loose, and there is no protection against the majority of smaller losses. Unfortunately, there seems to be an overlap in the middle, so that does not work either.

   In our view, one way this system may work is if the filtered trades increase the odds of success. However, there is apparently no historical data available on previous triangle percentages. And, according to the alert system, the triangle percentage values change over time. Presumably, all that matters is the trade entry value, since any reversal triggers an exit.

   Also, unscientific tests of correlation with other indicators for trade verification and increased odds of trade success, were not successful. Perhaps a deeper knowledge of an individual currency pair, combined with fundamentals or other unknown indicators would work. We would be very happy to find a way to make this system succeed. Suggestions?

6. Richard,

   Thanks for your feedback.

   "Are you saying that the World Commodity Fund does not use stops, but just waits for the next reverse triangle to exit that trade?"

   Yes.

   Are you filtering your trades? If you are not, give our customers support team a call at 410-867-2100 and they can help you.

   The other key to success is to diversify your portfolio.

   All the best,
   Adam

   1. Thanks Adam.
      I am not sure what you mean by “filtering your trades”. Does that mean only trading on the high-percentage triangles?

      We have done an analysis of the triangle trading system going back two (or more) years on several of the most-traded currency pairs. In our results, the triangles correctly indicate direction about 39% of the time. This is understandable and expected since this is a breakout system and most markets range for about 80% of the time. But the breakout wins should be large enough to cover the false breakout losses. However, they do not. Our analysis showed small but consistent losses over time, even before adding trading costs (commissions, spread, roll, slippage, opportunity costs etc). This assumes the use of no stops in place.

      Testing various stop protocols just highlighted the classic problem. Too tight, and some breakout trades are cancelled before they can get going. Too loose, and there is no protection against the majority of smaller losses. Unfortunately, there seems to be an overlap in the middle, so that does not work either.

      In our view, one way this system may work is if the filtered trades increase the odds of success. However, there is apparently no historical data available on previous triangle percentages. And, according to the alert system, the triangle percentage values change over time. Presumably, all that matters is the trade entry value, since any reversal triggers an exit.

      Also, unscientific tests of correlation with other indicators for trade verification and increased odds of trade success, were not successful. Perhaps a deeper knowledge of an individual currency pair, combined with fundamentals or other unknown indicators would work. We would be very happy to find a way to make this system succeed before committing valuable capital. Any suggestions?

      1. Richard,

         The whole secret of our Trade Triangle technology is how we filter the trades. If you were just taking every signal without filtering the results would be dissappointing at best. With filtering the results shine.

         Adam

         1. Thanks Adam, your response is appreciated.
            Is there any source available for the historical data on the triangle percentages?
            And what other filters & indicators do you use for the World Commodity Fund?
            Rd.

         2. Richard,

            Historical data is with Triangles is available on MarketClub.

            Thanks,
            Adam

7. Peter,

   Every trader has his or her own trading personality. As such different traders can handle bigger risks while other traders are risk adverse and can only accept smaller risks. That is why we show you three different stop types.

   The Trade Triangles is a great way to use stops. The is what we use with the World Commodity Fund.

   All the best,

   Adam

   1. Adam Quote: "The Trade Triangles is a great way to use stops. The is what we use with the World Commodity Fund."

      Thanks Adam,
      I have had a lot of difficulty finding a methodology for setting stops when trading with your triangle technique. And without that, I have no system. Are you saying that the World Commodity Fund does not use stops, but just waits for the next reverse triangle to exit that trade?

      On an unscientific sampling a lot of the historical MarketClub Forex charts, it seems that, once a trade goes the wrong way, it is rare for it to turn around in the trader's favor. So some sort of trailing or ATR method (but on which time-period) may be appropriate. But nothing I have tested has worked so far.

      Also, it is difficult to assess historical data, since we do not know the strength of the previous triangles. (Eg. +100 or +55). Presumably, that would be relevant to the risk factor for a trade based on that signal.

      Any suggestions out there?

8. Sorry Adam I just dont understand your methadolody. If your trade triangles are as effective as you would have us believe then why do you need to have stops in the first place. Your triangles should have told your subscribers when to get out in the first place. Right?

9. Stops are the most psychological testing for me at least, and can even test your confidence in the system you use.

10. I like your article on stops Adam. If you get around to it. Could you add your view on trailing stops. And, the best stop of all. Hitting your target.

11. Dick,

    I'm not sure how to answer you but here goes. One of the keys to trading is to find out what works for you and which markets don't work for you. I found out early in my career that I was very good at trading Forex.

    Every time I ventured into options, I found I wasn't so successful. So guess what? I don't trade options. I'll stick to what I know best and that is trading in the stocks, futures and Forex markets.

    That's my advice.

    All the best,
    Adam

12. I've been playing gold mining options and getting killed...just can't seem to get out fast enough when the market turns. As you state, stops don't work with options....am I in the wrong league, or what??

13. I am using ATR as my Stop Loss. What I cannot finalise is the number of periods to use. Should I go with 14 period ATR or 2 x 5 period ATR.
    Any thought on using ATR as Stop Loss?

    1. Thank you for your feedback.

       To answer your question I really don't have any thoughts on using ATR as a stop loss tool. It could be excellent, but I really don't have any first hand experience using that particular tool.

       I wish I could say more, but that's all I can say.

       All the best,
       Adam

14. Stops are good but you should keep them to yourself. Don't fill them in electronically unless you have an emergency. Let's say you buy stock "X" at 20 and you want to stop loss at 18, you literally inform the market that you are willing to sell that stock at 18 but you don't get money for that information.
    Furthermore, never, ever, place a stop on an option unless it's hugely traded; your order is certainly going to be executed.

15. Using the trade triangles and long stocks would you not recommend waiting
    for a sell triangle? I've noticed if the stock dropped straight from the buy it would be a high percentage loss.I've puzzled over this.
    thanks.
    john

    1. Hi John,

       You should always place in a stop as an emergency exit. You are correct that if the trigger for a buy was met and followed by a sharp drop the percentage change could be rather large. This is why you always want to have a top in place. You may not receive a sell until a series of factors match up and trigger.

       Since the triggers are build through an algorithm, they can't always read what we would consider obvious moves, it will only really trigger when all the variables are given the go ahead.

       Best,

       Lindsay Thompson
       Director of New Business Development
       INO.com & MarketClub

       1. In the past, I,ve used 8 or 10% stops and found myself stopped out of a position that went on to gain everything back the next day or two, and to then continue going up.
          My question may be beyond the range of this article, but do you have any additional ideas as to how and when stops should be placed when I am following your trade triangle system.
          Thanks.
          Louis

          1. Louis,

             Thank you for your feedback. Most often folks use stops when they shouldn't. Let me clarify that, if you have a very big volatile market it makes little sense to put tight stop on a position. You're only going to get stopped out. With our Trade Triangle technology if you just used the reversal method there it takes into account the broad swings of the market and also when the markets tightened up. That way you stops tighten up as the market tightens up.

             Unfortunately there's no perfect fix solution for stops. My only recommendation is when the markets are volatile do not trade them and stand aside, or trade them but be diversified into several different markets.

             All the best,
             Adam

          2. Hi,

             A good Trailing Stop for long term strategy that I use is ATR(10) x 10= Trailing Stop. With this you have in to account the volatility of the market for your stop.

             Hope this helps!

          3. Makes some sense, but ATR on which time-frame? Daily?

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