Going through Kaufmanís bible about trading (Trading Systems and Methods) I found a remark about stops. Unfortunately I cannot find it anymore, so I canít quote it here, but it said something like itís not a good idea to have a preset stop before the market opens, because it may be triggered at the opening just because itís sitting there.
I donít use any fancy trading platform and I canít see the orders queue, but I know many use platforms showing the queue. I wonder whether this is what he was talking about. For example Iím long in a stock which trades at around $10 with a range of about $0.25 and I place a sell stop at $9. Will my stop order be seen sitting in the queue at opening? And assuming there is no other order placed ahead of / higher than mine, will mine be executed?
Could anybody please provide some light on the execution sequence?
Regarding the book, I think it is just too much to digest; itís rather an encyclopedia, while I was hoping for a cook book with trading systems recipes. It may have valuable material that would be well suited for a conference, but I wonder if real traders ever go into those details. Of course there are some practical pieces of advice but they are scattered through the text and you need to browse almost all the material to make sure you donít miss a good one.
I haven't read that book before, but I'm assuming the book is primarily focused on day trading or swing trading rather than say building an investment position that isn't too concerned about 25 cent stop placements.
So let's assume for illustration purposes example you were trading Apple to the long side on Friday Feb 27th 2015 and you bought at $128.40 and you put a relatively wide day trading stop at $126. Notice how the price gapped down to $125.41 and then closed that gap. This is what we would consider a classic predatory stop hunt during low liquidity.
And yes, a predatory firm can see your pending limit sitting there, and worse, they know it's a novice retail account coming from Scottrade or TD Ameritrade.
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There are no Bible's of trading. Trading is not religion. There are many different and even conflicting approaches. It depends on many factors. Do not rely on anyone's advice because it is based on their experience. Also most of what these books claim does not work nowadays. As far as stops, you must do what works for you and not what some author says it does or it doesn't. More losers can be attributed to authors than to markets.
When I said Bible I said it because of it's size. Didn't mean it's the reference book. And I know they often conflict with each other. 13-15 years ago I bought maybe a dozen books and after going through them decided I have better paper weight options and donated them to a library.
Now I wanted to revisit some material and Kaufman's book looked like a good idea because it looked pretty comprehensive and the fact the author had a strong math education seemed to be a plus.
When I'll know what works for me I'll use that, but until then I thought I don't need to invent the wheel and could take a look at others' wheels for inspiration. And speaking about one's own experience, I pretty much understand now what MacroNinja said about stops, but this hasn't been my experience at all so far. All my stops have been executed at the said price or reasonably close, I can't complain, but knowing bad things can happen makes me think now.