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Stops and news related moves
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Stops and news related moves

  #1 (permalink)
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Stops and news related moves

There are some people who think you should not bother to use stops at all. But that is another discussion.

The question I have is how people feel about moving there stops when a market move appears to be news or rumor driven.
Take Fridays drop. Some people overreact to rumors of a minor rate increase, or some people worry about election issues and the market drops a bit. But has your trade really changed?

You can choose to move your stops out of the way. And it is true that probably in a few days the market will come back up . So avoiding the actual loss of real money is a go. But on the other hand if you have taken positions based a particular risk reward calculation, moving that stop out of the way as it were completely distorts your calculations and trading strategy.

Personally I use fairly wide stops. So this only comes up for me in rare occasions. But it is an interesting question to ask. Why have stops if you are going to move them. But if the market move is based an bs why stand there and lose your money.

I am just wondering how other people have resolved this dilemma

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  #3 (permalink)
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I may repost this, or something similar, to money management. I think though this question comes up more often in equities because there is no expiration.

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  #4 (permalink)
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mcteague View Post
There are some people who think you should not bother to use stops at all. But that is another discussion.

The question I have is how people feel about moving there stops when a market move appears to be news or rumor driven.
Take Fridays drop. Some people overreact to rumors of a minor rate increase, or some people worry about election issues and the market drops a bit. But has your trade really changed?

You can choose to move your stops out of the way. And it is true that probably in a few days the market will come back up . So avoiding the actual loss of real money is a go. But on the other hand if you have taken positions based a particular risk reward calculation, moving that stop out of the way as it were completely distorts your calculations and trading strategy.

Personally I use fairly wide stops. So this only comes up for me in rare occasions. But it is an interesting question to ask. Why have stops if you are going to move them. But if the market move is based an bs why stand there and lose your money.

I am just wondering how other people have resolved this dilemma

Hi mcteague

To me this question has no fixed answer.

It's a bit like the dilemma 'do I take some good profits here or do I wait knowing that either my current profits will be diminished or they will be enhanced?'.

I believe it's all a matter of experience which means that an experienced trader will know that in some occasions it is appropriate to move the stops out of the way, knowing it is a risk. But they will have done the math and have accepted the risk.

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  #5 (permalink)
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Stops allow you to take a small loss to avoid taking a large loss.

You calculate the risk going into a trade. If you adjust your stop you are increasing your risk so hopefully the potential reward is there to offset the additional risk.

It is hard to find the Truth when you start your search with a preconceived notion of what the Truth will be.
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