This is no difference as saying " buy when the price is low" "sell when the price is high" " The key to success in Price Action trading is to look at context". The problem is in each chart pattern you always has the bear and bull views (this is market in reality). This is the reaaon why big institutions never trade by "looking" at chart, there is no edge and no difference by picking red/bkack in roulette. This is the reason why their money making machine still brokage, market making, selling finance product, Corp IPO/merging and etc.
"Always use stops" This can actually turn a great strategy into a losing one, speaking from experience. In a perfect world with little to no slippage, stops have their place. Yet, claiming stops are inherently necessary is the same as reversing the position as the stop level clearly has to signify change of direction, how many can really do that?
Not really true. It's a prudent form of risk management. You don't know the future - and while something could keep going past your stop it could equally reverse at some point beyond your stop. Just automatically reversing rather than taking yourself out doesn't guarantee anything. There's plenty of times people get stopped out and price reverses with much gnashing of teeth - but there's also plenty of times when one gets stopped out and price just keeps on going, saving oneself from serious pain. Traders take that for granted. Also a stop is a mechanical *order* to both the market and oneself that if price goes here the trade is likely invalidated at that point. Sure, things may turn around, but it's a disciplined approach to risk.
@i960 Even if you trade slightly illiquid instruments, the slippage on most stop orders will be large, add to that a mediocre profit factor and you remove most of the profit. I'm not talking about strategies that trigger less than 100 times per year here. Also, it's much better to already consider what the maximum loss could be in your time-frame and size the positions accordingly.
I agree, "Always" can be a dangerous word...because it leaves you close-minded and linear...which in trading, can be disastrous.
I don't agree. In a great strategy your stops should result in the best achievable return. But the way a stop is calculated should be correct. You should test the stop over a very big amount of trades. You should simulate many levels of stops to find the optimal place to put it. I tested my system and concluded that in the long term I can NEVER reach the performance I reach using stops, by removing them or by omitting the stop every know and then based on my judgment. The fact that your stop might sometimes close a trade that in hindsight would have been profitable will not influence your performance in a negative way, because this stop will prevent you also from taking big losses in trades that initially looked like very promising. You should add up all the missed profits because of stops and deduct them from all the missed losses due to your stops. Then you will see if you placed your stops well. If you lose money because of stops it means your stops are not placed well. Check out where it went wrong. But always put stops. Most important is that you do your math correct for defining the places where to put stops. That's where it goes wrong most of the time.
hmmm stops. It totally depends on the strategy. The largest players dont have stops, they have a PnL stop and a risk manager. The best directional traders I have seen have a hardstop a long way from their entry, kind of an emergency stop, when they close for a loss its nowhere near the actual stop they had.