I currently aim for trades that give me 2% gain vs a 1% loss. I try to place my stop loss 1% above or below ( depending on if i'm short or long ) support or resistance for the time frame of the trade ( usually from 30 min charts ) It works well sometimes but i'll often get stopped out only to see the trade reverse and then hit my 2% target which is frustrating. This seems to happen more with lower priced stocks. I'm wondering if anyone has better technique for placing stops, or a method to calculate the stop % based on daily range or beta value for a give stock? TIA
I don't have the answer but I wanted to give you props for an excellent topic for a thread. I have this issue constantly trading the Emini S&P. Part of the problem seems to relate to noise surrounding support/resistance points. Apparently, enough people set stops around these price levels and if they get hit too fast, the combinations of trailing stops going off and these stops getting hit causes a slight runaway effect, kind of an over running into the next support/resistance level, which immediately gets corrected. Unfortunately, I find myself stopped out and not sure enough to get right back in until I realize that my initial entry was at the correct price, but not on the correct wave.
I would take a statistical approach. It's always going to happen that we get stopped out of a trade that turns out to be good. The real question is, how often does it happen? It's really a tug of war: the tighter your stops, the more losses you prevent, but more good ones get away... you need to find a balance that works for your method. To make sure you're placing your stops right, look at your winners. Come up with the tightest-ass stop scheme possible that would still capture all your winners without getting stopped out. Then when you do get stopped out, it's because the market action did not conform to your definition of a winner. And that's a good thing.
I take an unorthodox approach. I put all my effort into the entry and take all the emotion out of the exit. Trading NQ, I either make x points or lose x points. If I win 3 out of 5, I'm profitable. Tbill
dbTrader, Try this. Instead of putting on your trade near S/R, just watch and wait for a spike in the opposite direction around these levels. For instance, say Spoo is testing a support level of 940. Wait for a spike down thru 940 and see if it stablizes, then go long with a tight stop. There seems to be more volatility at these levels because everyone is watching the same thing, so there are a bunch of stops just above/below these levels. It ain't perfect, but sometimes you catch a really good trade with hardly any risk.