Friday, August 24, 2012

Weekend Thread


In case you hadn't noticed gas prices are very high.  Don't expect this to get any better (I mean lower prices) anytime soon.  Enjoy your weekend.

Stops 1


Where, oh where do you set your stop loss order ?  I have come to believe that this is as much art as science.  It also one of the most important factors affecting your profitability.

Paraphrasing Einstein : stops should be as tight as possible, but no tighter.

How many times have you gotten snagged out on a stop only to see the stock reverse and then move in your direction ?  How many times have you cursed the evil market makers for gunning your stop ?  Well quit thinking like that !  It’s not going to help you make money.  Yes, the big boys push things around, but it’s mostly just the market seeking liquidity (supply and demand areas).  This is something we just have to deal with.

Here are some BAD places to put your stops :

Inside of current congestion area (overlapping bars).  Helloo, it’s bouncing around in there.

Some arbitrary dollar or percent amount away from your entry.  The market neither knows nor cares what your entry was.

Your breakeven point.  See preceding.

“Too near” the prior high or low.  Everybody else has their orders there.  You have just become a potential source of liquidity.

Some characteristics of a GOOD place to put a stop :

Protects against the maximum allowed loss as determined before the trade was entered.  Which is the point for an initial stop, right ?  (subsequent stops, if any, should always be tighter than the initial)

Is based on market price structure (support and resistance).

Has a little “wiggle room”.

Is in an area which “should not” be (re)visited if the trade is going to work out.

More to come, but that’s enough preachin’ for one day.


Friday Morning


Hopefully gator survived :)