Hello,
Please advise how you trade Spread:
How you use Stop Loss ?
Is the Stop Loss active or Mental ?
Do you use Option to protect the position ?
Thank you
Moti
Stop Loss in Spread trading
Support for strategies module
2 posts
• Page 1 of 1
- Roman
- Posts: 145
- Joined: Tue May 14, 2013 12:59 pm
Hi Moti
- First of all, it's really necessary to have some stop loss. When you get good times when seasonality works, you can without SL (or with buying in losing position) achieve very nice high profit, but when bad times will come (and they will come, that's sure), you will probably loose your account.
- SL application depends on your broker and your trading style. Some brokers support SL orders some not. For example Interactive Brokers (which is used by most of the spread traders I know), have no SL orders for exchange traded spreads. For other spreads (intracommodity e.g.) they use SMART routing (orders are held on their servers and send as separate legs to exchange) which supports SL orders. You can set SMART routing for exchange trader spreads too. But from my experience, when I tried it, SL orders were not really reliable. And I didn't get any good explanation from support so I simply gave up and don't use it. I know some traders who have their own programs which take care for SL (through API). But if you want to use hard SL, you must count with intraday volatility and SL can kick you out from market during day, only watching later on EOD data that SL was not hit. Btw, you have to decide if you want to watch and trade spreads on intraday basis or only on EOD data. You should test it and be consistent.
- Most of the traders use mental stop loss for spread trading. You just need good discipline and turn off hope mode
You can also use alerts in our platform to be notified when your SL is hit. Also visualization in chart can help you to follow you plan and get out of trade.
- You need to have good money management. Because sometimes spreads can be very volatile and make big gap against you (see 2012 summer grains especially soybeans spreads). I know traders who lost their accounts in one day. So be careful and don't risk too much in one trade (or in same commodity category).
- As spread is difference between two legs, I don't know way how to use options as protection. Never heard that anybody use it. But it doesn't mean it could be done.
Hope this helps
Roman
- First of all, it's really necessary to have some stop loss. When you get good times when seasonality works, you can without SL (or with buying in losing position) achieve very nice high profit, but when bad times will come (and they will come, that's sure), you will probably loose your account.
- SL application depends on your broker and your trading style. Some brokers support SL orders some not. For example Interactive Brokers (which is used by most of the spread traders I know), have no SL orders for exchange traded spreads. For other spreads (intracommodity e.g.) they use SMART routing (orders are held on their servers and send as separate legs to exchange) which supports SL orders. You can set SMART routing for exchange trader spreads too. But from my experience, when I tried it, SL orders were not really reliable. And I didn't get any good explanation from support so I simply gave up and don't use it. I know some traders who have their own programs which take care for SL (through API). But if you want to use hard SL, you must count with intraday volatility and SL can kick you out from market during day, only watching later on EOD data that SL was not hit. Btw, you have to decide if you want to watch and trade spreads on intraday basis or only on EOD data. You should test it and be consistent.
- Most of the traders use mental stop loss for spread trading. You just need good discipline and turn off hope mode
You can also use alerts in our platform to be notified when your SL is hit. Also visualization in chart can help you to follow you plan and get out of trade.- You need to have good money management. Because sometimes spreads can be very volatile and make big gap against you (see 2012 summer grains especially soybeans spreads). I know traders who lost their accounts in one day. So be careful and don't risk too much in one trade (or in same commodity category).
- As spread is difference between two legs, I don't know way how to use options as protection. Never heard that anybody use it. But it doesn't mean it could be done.
Hope this helps
Roman
2 posts
• Page 1 of 1
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