how about doing the opposite ( kinda)....Enter a position long 500 shares and when it is close to hitting your stop add another 500 and exit the entire position if it hits your stop..... doing it the other way may shake 1/2 your position out of alot of winning trades....just my opinion
Definitely not, because all you are doing in this case is locking in losses. You need to wait for the market to tell you that your position is wrong. Picture the following scenario. You go long, with a stop just below recent support (for example) at 2 points away. The market trades back to 1.5 points against you, tests this (valid) support level and then trades higher in line with the reasons you put on the trade in the first place. Taking losses when the market has not yet told you that you are wrong makes absolutely no sense to me. No. Don't forget, a stop is a device designed to get you out of positions that are wrong, not to lock in losses. Wait for the market to show its hand, and either tell you you are wrong (you stop gets hit), or you are right (the market starts moving in your direction). Your initial question was about initial stops. I assume you also have (and, in my opinion, need) some form of trailing stop (although the word stop in this sense is a bit of a misnomer - it should be called a trailing profit-protection device- a TPPD!!) to protect your profits. This is a whole 'nother discussion.
Some traders swear by this and other similar management techniques, but the reality is you are really trading two distinct and separate methods. You need to test each method individually. The reason some traders love this technique is the psychology of minimizing risk. This is similar to exiting partial position after small profit and moving stops to break-even in case there is a big gainer. This way you don't psychologically feel that you've "missed the move". But if you do serious analysis you'll realize that each method has its own set of expectation and risk profile.
2 pts is plenty for many serious strategies that aren't momentum scalping. Depends on your timeframe, among other things..
Examples, please? Never did well with anything smaller than 2.5 pts, prefer 3 pts at least, 4 pts just in case. 6pt stops don't bother me when hitting bigger runs. If you have stops that tight you end up with more trades if only because you are stopped out too often.
wel isn't that a fine how do you do. If 2 pts isn't enough, well then just turn it around and take a 2 pt profit. I am so sick of people saying stops are too tight. If a 2 pt stop and a 6 point target is a loser, then the opposite, a 2 pt target and a 6 point stop has to be a winner. Well? Which is it?
There are two issues here. One is stop size. The other is whether scaling out is beneficial. They are interrelated, as can be seen from a max adverse excursion analysis. Obviously you do not want your stop to be in the range of MAE's that typically come back to be winners. Similarly, you wouldn't want to scale back in that range. It may be that your MAE shows a dropoff in winners at some point and a more dramatic cutoff further out. It might make sense to scale back at the first break point and exit completely at the second. Another factor is exit technique. I have generally found that wide stops that are seldom hit provide the best overall results, but that is in the context of trying to hold winners at least until the close. It doesn't make sense to risk 6 points if you are going to take 2 point profits regularly. I also think the common advice to use "natural" support and resistance for stop placement is nonsense. The floor makes a good living taking these levels out every day. Pay attention to them but don't put your stops where the floor can get at them.