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hmmm - im a novice to amibroker but not to trading and i have rarely
put hard stops on trades i prefer to feel it out a little and let a
stop be breached a bit - give it some time to see whats really going
on then go from there - i think thats something that takes experience
as for me that has worked more than it hasnt but ive gotten cought
more then once but nothing too major - i think some common sense
helps?
--- In amibroker@xxxxxxxxxxxxxxx, "palsanand" <palsanand@xxxx> wrote:
> Hi All,
>
> I came accross this in S & C Magazine interview with Don Bright of
> Bright Trading:
>
> Do you have any sort of stop associated with your buys or shorts?
Is
> it possible to post them with your entry? I have read in several
> books that you should know your exit before you enter a stock. -
> Bobdek
>
> Using stop orders is tantamount to showing your poker hand to other
> players. "Mental" stops, on the other hand, provide a trader with
the
> opportunity to scan the overall market conditions without being
taken
> advantage of. Here's one prime example of something that happens
> every day: Assume a stock is trading 50.00/50.10 10x10. Now you see
> the quote: 49.00/50.10 1x1. Your (sell) stop is 49.20.
>
> Most experienced traders actually put in buy orders as quickly as
> they can when they see the bid price drop, since they know that
> a "negotiated print" is about to take place at a lower price. Then
> the stock prints, say 100,000 shares at 49.10; your trigger goes
off,
> and you lose money.
>
> In all likelihood, the stock will rebound near its previous price,
> since this was simply an example of a "trade-through" aberration.
> Since many brokers in the crowd (and market makers at firms)
> are "holding orders" (so they can get extra commissions), they must
> rush to buy the stock at their limit prices - at which the stock
goes
> back up - you lose. Now, if you were using mental stops, not only
> would you not sell, you would actually be buying and making money.
> Floor traders, specialists, and market makers understand this
> phenomenon, and use it to take advantage of stop orders and pricing
> variables.
>
> Looks to me a good rule of thumb is to wait for about 20 minutes
when
> your mental stop is hit and if and only if you are still losing,
that
> it is prudent to exit the trade and not before, but there are
certain
> instances where a tight stop is essential, for e.g., trying to
catch
> the trend on a pulback, because if you are wrong about the trend,
it
> would be costly indeed. A better strategy is to optimize your
entry
> points based on volatility and a prediction of the next day's
range,
> in which case we can even afford to have a tight stop in all cases
> and a uniform way of coding stops in AB.
>
> Any thoughts?
>
> rgds, Pal
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