Just a bit more about stops. In my last missive, I said that I like to wait until a new support or resistance area has been established before tightening the stop. That’s true, but there are a couple of additional circumstances where I tend to tighten.
1) Wide range bars. In general, I do not think that these should be given back. My thinking is … “the stock has made a very strong move and it should continue if all is well”.
2) A parabolic move. When the thing starts going basically straight up or down, I’m watching the dollar signs and not wanting to give much of that back.
Referring to the ESRX 5min chart above (chosen simply to illustrate this post) (could also be a daily chart, same principles apply) :
A) Entry, breakout from morning congestion. (another great entry from the left side of the chart, am I good or what, lol)
B) Initial stop, placed under the low of the breakout bar.
? ) Here’s a wide range bar, which I usually don’t think should be given back. Should I tighten there ? Being a chicken, I probably would, but let’s assume that since the trade is less than 10 minutes old I want to give it some room.
C) That bar triggers a buy setup which formed from ?) to C). No way should that be given back, so tighten. (it would be a good add point too)
D) Another wide range bar. The trade is more than an hour old now. Right or wrong, I would probably tighten there.
E) Breaking out from a high tight flag. Notice also big volume on that move. You want to see big volume on a breakout.
F) It’s starting to turn parabolic. Notice that the bar ranges are smaller than the previous wide range bars. This looks like something they will walk up until it fails, so I like to tighten frequently.
G) Just a tighten on principle because it’s still going up.
H) Decent size bar on breakout from a little consolidation. Definitely should not give that back if it’s going to continue. Notice a bit of topping tail on that bar. There be sellers here. The previous big bars closed more or less on their highs.
I) Stopped out for about 1.15 gain.
So … to distill my current thinking on stops down to a soundbite … I want to wait until price does something “special” before moving my stop. “Special”, like “beauty” or “porn”, is in the eye of the beholder. It seems to me that there is a lot of art in the science of moving stops. They also call it “trade management”, and that’s where the big money is to be made.
[ please do not presume that I trade in this idealized way .. because I don’t. I know a couple of traders who do though, and their attitude is something which I am trying very hard to adopt. Currently, when I get into a trade ... I get rather anxious, I am constantly wondering whether I should tighten stop / move target / kill the trade / check on other markets for a decision / etc., etc. We have met the enemy and they is us. ]
1) Wide range bars. In general, I do not think that these should be given back. My thinking is … “the stock has made a very strong move and it should continue if all is well”.
2) A parabolic move. When the thing starts going basically straight up or down, I’m watching the dollar signs and not wanting to give much of that back.
Referring to the ESRX 5min chart above (chosen simply to illustrate this post) (could also be a daily chart, same principles apply) :
A) Entry, breakout from morning congestion. (another great entry from the left side of the chart, am I good or what, lol)
B) Initial stop, placed under the low of the breakout bar.
? ) Here’s a wide range bar, which I usually don’t think should be given back. Should I tighten there ? Being a chicken, I probably would, but let’s assume that since the trade is less than 10 minutes old I want to give it some room.
C) That bar triggers a buy setup which formed from ?) to C). No way should that be given back, so tighten. (it would be a good add point too)
D) Another wide range bar. The trade is more than an hour old now. Right or wrong, I would probably tighten there.
E) Breaking out from a high tight flag. Notice also big volume on that move. You want to see big volume on a breakout.
F) It’s starting to turn parabolic. Notice that the bar ranges are smaller than the previous wide range bars. This looks like something they will walk up until it fails, so I like to tighten frequently.
G) Just a tighten on principle because it’s still going up.
H) Decent size bar on breakout from a little consolidation. Definitely should not give that back if it’s going to continue. Notice a bit of topping tail on that bar. There be sellers here. The previous big bars closed more or less on their highs.
I) Stopped out for about 1.15 gain.
So … to distill my current thinking on stops down to a soundbite … I want to wait until price does something “special” before moving my stop. “Special”, like “beauty” or “porn”, is in the eye of the beholder. It seems to me that there is a lot of art in the science of moving stops. They also call it “trade management”, and that’s where the big money is to be made.
[ please do not presume that I trade in this idealized way .. because I don’t. I know a couple of traders who do though, and their attitude is something which I am trying very hard to adopt. Currently, when I get into a trade ... I get rather anxious, I am constantly wondering whether I should tighten stop / move target / kill the trade / check on other markets for a decision / etc., etc. We have met the enemy and they is us. ]