If you don't use a stop then how do you determine when you are wrong ? Before I enter any trade I learned to always have an entry an exit and a point where I bail. For you guys that don't use stops how do you determine when you are wrong ?
It really depends on how you trade. For scalpers, the market will usually tell you that you are wrong or maybe you are right but your timing was wrong. In either case, you're wrong. If you trade off of technicals I have no idea.
Here's something that even decade+ veteran traders have trouble understanding: The market does not know or care where you got in! 'Being up' or 'being down' on a position shouldn't ever change the way you trade it. The market has no idea where you got in. To me it's not about right or wrong, but what I expect the stock to do next.
Ideally when I enter a stop on a position, the issue isn't how much I'm up or how much the loss will cost me, but rather that the market should not be able to trade at that price level in the time frame I envision holding the position -- if it does, I am wrong and must reassess my opinion. The setups that I look for always involve using rather tight stops immediately upon entry, because 95% of the times if the trade is going to work, it will go profitable instantly and never look back. I'm not just betting on price direction, I'm also betting that it will go that direction at this very second. So in a sense, using a very tight stop upon entry is also an automatic time stop, because the inherent noise on the markets I trade will stop me out even if I'm not exactly wrong on direction, but mistaken on timing. As for profitable positions, I learned to really try not to tighten my initial stop at all, perhaps to breakeven if my timing was somewhat accurate, but beyond that I just pay attention and let the market movement tell me when it's time to leave. Interesting thread topic in any case, I've always been kinda ambivalent about the necessity for stops. I think the whole dilemma about stops goes something like: by the time you really learn how to properly use them, you won't need to use them -- or something to that effect
Most of me agrees wholeheartedly that this is one of the keys to successful trading. The rest of me thinks: Actually, the market does have an idea where you and everyone else has probably entered; hence, it also knows the point where many will likely stop themselves out . . .
Actually, I think I average getting stopped 6 out of 10 times upon entry. But it's the ratio of reward that makes up for that. I don't trade often enough for commissions to be much of a factor
I'm not sure I understand your post. Do you mean an original stop of 2 or 3 ticks, or do you mean allowing the trade to go against you an additional 2 or 3 ticks beyond an approximately "intended" stop? If you mean the latter, then would not the answer depend on the person's individual trading style? A low volume, relatively low leveraged trader would likely agree with you, but a highly leveraged and frequent trader might not. Consider 2 or 3 ticks multiplied by the number of contracts per trade multiplied by the number of trades per day. I would think that it can add up for some people.