Keep using stops. They're good for you. Read more news, become more familiar with the cause and effects of the market.
I suggest looking at daily economic reports released by Report Schedule. They are news makers. If you see what's scheduled for the next couple of weeks you will gain a better understanding of what kinds of news to expect. Weather positive or negative is still unpredictable but the fact that you know the TYPE of news it will be will prepare you better.
When you get right down to it, 'day trading' with stops and quick profits is by far the toughest trading possible. If you are using size, you have to have great entries and you HAVE to use stops because otherwise, your capital will eventually get some unacceptably big hits when the market goes against you.
You could however, cobble together a reasonable long-only dip buying 'swing trading' system utilizing stock indexes that uses conservative position sizes and a high level of selectivity on the entries and does not do any buying during panicky selling. You would however, only buy after weakness up to a conservative % of your total capital and you would scale-in on more weakness, up to a point.
You could do this with no stops if you didn't have more than a conservative x % of your capital committed at any point. The tough part then becomes figuring out when to sell and you could still flip stuff over in day trading style, during certain market conditions. The one weakness of this or any other buy/hold strategy is being exposed long to any degree during a black swan event that closes the markets down. Of course, you have to have some capital behind this to make it viable for making decent amounts of money.
Anyway, this is what I am working at because let's face it, buying the dip with stock indexes usually works in the longer run IF your entries are excellent and you are willing to take 'some' profits on the way back up, never having your inventory get to be too large.
That is why it is of my opinion that stops should be discretionary and not used
systematically. When I enter a trade and it starts to move, I am watching the tape
and the order flow as well as price (duh) + volume. Treat stops as if you're a painter putting
the finishing touches on your picture. Stops are the last part of the equation (for a day trader)
that separate the winners from the losers.
The initial placement of my stop is based on my method and has an exact spot but it's not always
the same % or ticks away from entry.
This is what I think and feel from my 2 years of experience as a trader. I have a lot more to learn
and am always willing to adjust as I'm open minded to new ideas and concepts.
Anyone use a discretionary style?
I know one of the greatest day traders ever used a fixed dollar stop (Martin Schwartz)
Last edited by Massive l; April 20th, 2011 at 06:08 PM.
Placing SL above/below daily high/low gives you an statistical advantage since the market have limited ability to take change its daily trend. I use a few more criteria's like the size of the SL should be less than 40 pips.
Stop loss location can be a frustrating challenge for aspiring daytraders, seeing their beloved SL being "hunted" down in a flash. If you enter your positions by technical analyses, you should exit by it too. Like surgeons doesn't stop operating after a predefined time, random predefined numbers (i.e 50 pips) for SL will most likely reduce your performance.
Here is an example how using last swing low/high would have shaken my long position out if I didn't hide SL outside the daily range;
"We may not be able to control the wind, but we can always adjust our sails"
Last edited by aediaz1; April 22nd, 2011 at 06:33 PM.
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The following user says Thank You to aediaz1 for this post:
Some traders are mandated to use stops, usually in the case of a bank proprietary trader. Some traders do not have such a mandate.
For reversion systems, I always found it most comfortable to start with a wide stop, and quickly tighten down the stop to the pivot point closest to my entry after a certain amount of profitable ticks have been made.
For trend continuation systems I am most comfortable using a trailing stop.
I am a big believer in black boxing systems while still have a manual override capability to change the stop or trailing stop.
The following user says Thank You to Baseheadz for this post:
finding a GOOD STOP is like finding a MED for cold
finding an effective stoploss is very much like trying to find an effective dose of med for cold.
as far as my personal experience is concerned, there is none to be settled on as yet to date.
traders who have survived through rough beginning will testify that it is naive to expect market conditions to conform to your own set of perfect setups, expectations and formula.
as a trader, the moment you stop exploring the complementary possibility to whatever setups you have been successfully using in the past decades, you'll also discover that whatever targets that have been so effective will also begin to fade away from you.
hatorihanzo, some traders started out experimenting with 21 tics in day trading, then gradually tightening up to 19, 16.... 9 and 4... at present.
but only a fool would set the stoploss at 4 consistently to trade across the market conditions.
on the other hand, it is also inconceivable to change stoploss as you trade along which would be like flying without a flight plan, so to speak.
my humble suggestion would be for you to sim out the range for each product you choose to trade, and set your personal fortune plus or minus a few tics above or below that range.... like many who trade for a living do.... all the time.... in order to survive....
hatorihanzo, wish you good hunting and good fortune as well. many traders use stoploss less than 10 tics effective, but i suspect only a small percentage of that group would effectively use 6 or less to trade profitable AND consistently. i do hope the distinction between stoploss of 6 tics and the stoploss set at plus or minus 1 or 2 above or below previous bar, is clearly perceived to avoid subsequent misunderstanding and argument.
if anyone have any doubt if or whether it is probable even to trade with 4 or 5 or 6 tics stop, the attached pix taken today, 2011/09/26 right after lunch at 13:48:11 and lasted only 34 seconds, will provide some clues to its possibility.
good trading everyone. (my apology for not reading thru all the rich and famous posts, before replying, my better half only allows me a few minutes break every now and then )