If I have a planned stop in my strategy and it is a very tight stop, say 1 or 2 points and I let the market take me out if I am wrong.................... Am I in violation of Rule #1 because I let the market take me out? I am having trouble with this.
RULE #1 A quote... "In a losing game such as trading, we shall start against the majority and assume we are wrong until proven correct! (We do not assume we are correct until proven wrong.) Positions established must be reduced and removed until or unless the market proves the position correct! (We allow the market to verify correct positions.)" A quote... "The correct way to control positions is to only hold them once they prove to be correct. Let the market tell you your position is proven correct, but never let the market tell you that your position is wrong. You, as a good trader, must always be in command of knowing and telling yourself when your position is bad" It is important to understand that we are saying the one criteria for removing a position is because it has not been proven correct. We at no time use as criteria for removing a position the fact that the market proved the position incorrect. There is a big difference here as to how we treat all positions from what most traders use. If the market does not prove the position correct, it is still possible the market has not proven the position wrong. If you wait until the market proves the position wrong, you are wasting time, money and effort in continuing to hope it is correct when it isn't." Now whether I am a daytrader, swing trader or position trader is not important. What I am confused about is....if I determine that I want a 2 point stop for my trading strategy and I let the market take me out instead of getting out sooner.....AM I IN VIOLATION OF RULE #1???????
It really depends on your trading plan. Here's how I would put it: Get out when the criteria that got you in the trade is no longer valid. So, lets say you bought at a key support level, but then you see price dropping right through that support level, at that point I would say, yes...get out right away, or even reverse your position. I've traded this way on the YM with good success. But at the same time, I think you have to allow enough wiggle room to let the trade play out properly. I can't imagine using a 1/2 pt stop on the ES or a 2-4 pt stop on the YM. That's just normal noise. -FastTrader
This is exactly my dilemna with this advice. If I trade a double bottom with divergence and set my stop at 2 points on the ES or 20 points on the YM because thats my strategy, and the trade begins to go against me......I am reading the Phantom to say get out sooner, keep your loses small, live again another day. Now I think a 2 point stop on the ES is very tight and small to begin with. I guess I am not communicating this very well. The advice from POP on this type of trading is not sinking in with me. I understand Rule #1 and try to live by it....I keep my losses small. $100 per contract. If my strategy had a 10 stop and the market began to go against me, I would certainly cut my losses before the market took me out at my stop. Clear as mud.
Personally, I find a 2 pt stop on ES to be sufficient for my methods. Now, going with the 2-pt stop, at times I do bail at only a 1-2 tick loss if I get a good indication that the criteria that got me in the trade is no longer valid. Most of the times, the little voice in my head can tell me whether I'm in a good trade or not, and when that happens, I try to get out before my stop is hit and wait for the next signal. On the YM, I use a 8-10 pt stop, and if the trade goes against me big-time, I will reverse my position at the stop limit and ride it the other way. This reversal technique tends to work better on the YM though. -FastTrader
The market isn't telling you you're wrong. You set the stop. You decided prior to the trade when you would be wrong. You decided that you would be wrong when the market was entry - 2. You are in full control, not the market. C'mon VT, too much of that psycho-babble will really mess you up. Enter, set pre-determined stop, manage trade, take profits. Some authors want to dazzle you with all that "you must be in control" stuff. Heck, we're just going along or the ride. Like a surfer, like a market surfer... .... get it?