My Dearest Trading Brethen, I would be most gratified if you would participate in this here poll... When you enter a trade, do you try and get in with ass tight initial and trailing stops, or do you use larger initial and trailing stops? In other words, are you the sort of person that prefers to have very low risk but with lots of whipsaws and re-entries OR are you the kind of person who doesn't mind taking lots of larger stops but with fewer whipsaws? If you do it differently from either of the above, please comment... Love, Candle
I use a 3 - 3.50 initial stop on emini then tighten as trade progresses - don't know if you consider that large or small?
I suppose there are different ways to define what constitutes a large stop versus a small stop. For example: - stops derived off a smaller timeframe versus larger timeframes - stops defined off individual bars versus the bigger picture technical support and resistance (in the same timeframe) - stops on minor S&R versus major S&R (in the same timeframe) - stops based on the bid or ask (perhaps plus a premium of 1 or 2 levels) versus stops based off quite a few levels away from price in the bid/ask and orderflow box (these kind of stops are more for very short term scalping)... You get the picture... a stop is "small" if there are feasible alternative stops which exist that are bigger... its kind of a relative thing...
Small initial then wider trailing. When I first put on a trade I'm not willing to risk much. Once it has moved in my favor I'm willing to give it some room to run. Banker
I'm somewhat of a exit junkie, I use about 9 different stops in my systems. As I trade 90 stocks, my stop loss point is about 5% and the trades usually run a day or more. Some exits are based on time: After a while I want out unless the trade is making a significant move in my favor after N bars. None are exotic, they include stop loss, trailing, SAR, as well as others. DS
I think #2 is the most effective.. allowing the trade to move, but then tightening up profits once it goes in your favor. Initial stop is based on market structure and then trails with a simple parabolic. #1 is for the paranoid risk adverse traders, too tight of a stop doesn't allow your analysis to have a chance to work if you don't allow it to move. Sure, super small losses are psychologically appealing.. but most of the time, traders don't have the confidence to re-enter after being stopped out (might lose again) and therefore, it's a false sense of money management.