In Trading in the Zone it emphasizes predefining your risk. Thus it would make sense to enter in a stop order as soon as you enter a position. However I have heard that the Bright brothers use discretionary stops, as in they close the position when they decide it's not working. What are your opinions on pros and cons of each strategy?
Another way of predefining, or managing risk, is picking the right market - in my case the ES - and entering that market with a fairly sizeable account, and trading very, very small, relative to your account size, and let the leverage work for you. If the trade doesn't work on a short time frame but the setup is still intact on a larger time frame add to the trade. Managing risk is not limited to using stops. Money Management <i>is</i> a form of Risk Management. Timing the market perfectly cannot be done but fortunately, if you have other tools you don't have to. Trading in the Zone.....best book I ever read.
if you're watching price as your in the position, why bother with a stop order ? Frankily, I've found that if I use a stop order, I'm more likely to let price hit my stop when the trade goes against me. If my stop is discretionary, I've found that I will exit the trade prior to the stop to cut my losses quicker once the trade goes against me. Just my 2 cents and my own personal preference.
Interesting. How to use stops is just another concept that reinforces that fact that trading is an art, not a science. A rule disciplined traders tend to adhere to is, "Stops can only move in one direction - in the direction of the trade." I think this is a pretty good rule but it's a rule that I frequently break. There just aren't any hard and fast methods of trading that always work. Sometimes discipline will let you down and other times a lack of discipline means you will blow out. This is just a brutal business. Ahhhh.....the dilemmas of trading!
Neither works. If I place stops on logical places they are always hit -and market immediately turns in my favor in 90%. Much better works cutting trades those are hesitating go my way, but sometimes big disaster (internet, hardawe failure, shitting, drinking water, etc) is unavoidable. I use both. Hard "Daytrading disaster stops" but never let them touch under normal circumstances.
For a newbie a stop is must, and it should be pre defined before entering the trade and adhered to. You see, the newbie will encounter all sorts of problems if he does not. Letting losers run etc
After frantically trying to get out 1 or 2 trades when the market and the volume moved against me --- I have come to the conclusion I always have to have a stop loss in place I don't know how much money I might make on any given trade --- that is somewhat discretionary. But I am as certain as I can be on how much $ I plan to lose
I use both. It's what I do and works very well. Thus, use a fix hard stop for emergency situations (e.g. computer crashes in the middle of a trade). Therefore, as Pholeuon said, under normal trading conditions you don't let your hard stop get hit. You should understand the price action well enough to know long before that you have a problematic trade. If you can't see a problem trade in the making as it is occurring...you don't understand the price action. Simply, never let a hard stop get hit under normal trading conditions. As for the discretionary stop that's sometimes called a mental stop... Use a discretionary "mental" stop to tell you its time to exit a position. Mark
I would say that you HAVE to have some wide stops for unforeseen emergencies (terrorist atacks, eartquakes, surprise fed cuts if you are short, etc). Unless you intend to watch the market nonstop, not even for going to the bathroom. Then you can also use discretionary stops.
are there certain situations , like in disaster situations, where exchanges will disregard stop orders? I know they are invalid in the afterhours market.