I have a question about stops that I hope some of the experienced traders can help with. When i read about stops many people say to use a 4-5% or something around there, however i remember reading back somewhere that somebody looked at the daily volatility that the stock made and thus based there stop-loss percent on that. Therefore the number wasn't an arbitrary 4-5% is was more based on the volatility of the stock. This seems to make more sense since each stock behaves differently and thus setting the same 4-5% stop would not necessarily be optimal. Some stocks may be 3% where others may be 7%. Have you heard of determining stops this way and if so how would I go about calculating it.
Using a % stop is for idiots that can't read entry/exit signals. There is nothing more crude, but if a trader doesn't know what they are doing then placing a limit on what losses they incur makes sense - but it will probably just prolong their journey to loosing everything. Proper stops are based on price action signals first and indicators second and % losses shouldn't come into the equation. I would expect that if you do a search on ET you will find a thread on how to place stops - but look for price and indicators and not %'s.
Franglish and TA. I friend of mine just moved to Sudbury. In Sudbury people speak "Franglish" meaning that instead of using exclusively English or French they just what ever language describes the situation best. So instead of saying "The best of the best" they would say "le creme de la creme" for example. It is very easy to dismiss TA as snake oil that doesn't work. If you think of it as a formula to find truth in the markets this is correct. No TA method works all the time. If you think of each TA method as a language that you can draw on to help you understand or describe a market you will have greater insight into price action. Like any language practice is required to master it's finer points. That is how I see it.
zf that's very true. Question is can you give a workable answer to a specific problem? I exect you can, so I'm prodding you to give something that a trader can put into use.
Yoohoo--------------I note that you use range bars for the ER2. What range do you recommend for someone who generally trades a 5 minute time frame?
Well I am definitely a newbie and need stops to help preserve my money, at least for now. But do u know of the way i mentioned for calculating stops, have u seen that before and know how to do it. Could you also help me out with determing where to exit based on price and indicators. For price are u looking at candle formations (hammer, doji, etc.) and if a target has been meet, what others things relating to price to do u look at. Also I use Stochastics and MACD for entries so how could I use those for exits. Sometimes when I look to these indicators for exits they give me a false signal and im out early. (I do trades 2-4 days in length using the 30min and daily chart)
Well TimDog, you are asking pretty big questions that have got books-worth of answers. Have I seen percentage stops? Sure I have and imho they are for investors, not traders. How do you place them? One course I got years back recommended a standard 10% stop. You can get smarter and do like you are thinking of and estimate what the average pullback is and use that - but what skill is there in that? Certainly not trading skills! Next, where to exit based on price and indicators? Phew! Reading price action is a real skill and then a little bit arty as well. The same can be said for indicators except you need to learn by experimentation how to set them up so they talk to you and very few have mastered that; so few that it's a common theme in ET that it can't be done - indicators lag is the mantra. Let's start with the easy bit. I'd suggest you learn price action signals using Candlesticks. There's loads of websites that offer free information and search ET. This should knock the percentage stops out of you You need to put this in a framework of Support & Resistance and I've covered some of that in this thread. Also read all the posts in Interesting Charts thread as many of those techniques will work in a bigger timeframe. Again check S&R threads on ET. When you have a reversal signal based on Candle Pattern combined with S&R you will have learned to place your stop just outside the signal candle. Every reversal candle pattern has stop placement as part of the signal. What other things do I look for? Quality of movement ie fluid price action where the candle bodies don't overlap so one body starts where another ends. Overlapping bodies is not so clean of a move and is not the place for you to start. How to use Stochastics/ MACD for exits? If you learn price action your normal settings for these will indeed lag. Treat these as telling you when they are in the place where a reversal is more likely - then take the candle signal. The actual indicator signal will follow your trade in most cases. Check Goinglite's posts in Interesting Charts for more using CCI. Earlier in this thread I demonstrated using Bollinger Bands for S&R and trailing stops for exits and entries. Now it's time for some real hard graft and loads of time and effort on your part. Be prepared to spend thousands of hours learning your craft - it's part skill, part art and mostly time and money that you need to make it big time.
Range Bars are a good idea. My favorite for the ES is the 200 Range. For my methodology, it offers some extremely high %, and High Reward/Low Risk Setups. Goinglite