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Joel,
I'm a firm believer in using stops, but only mental stops. You
should never enter a trade without knowing when you want to get out if
the market goes against you. I like to use trend channels and enter a
trade in the direction of a intermediate or long term channel. For a
long position, I like to enter when a stock bounces off the bottom of
the intermediate or long term channel and then breaks out of the short
term down trend channel that brought the stock to the bottom of the
longer term channel. I'll set my initial stop under the bottom of the
longer term channel and move it up as the stock moves up. When I have
enough data for a new steeper short term up trend channel, I'll switch
the stop to under the bottom of the new short term up trend channel.
Since the stock specialist can see your stop if you enter it with your
broker and knows where stops usually are set if you don't, they will
tend to "gun" stops. That is, they will bring the stock down to the
stop level before letting it move up. To avoid that problem, I use
mental stops and only act when the stock closes below the stop. When
it closes below the stop, I enter a market order to close the position
at the next days open. I have friends who modify the rule slightly
and require the stock to be below the stop two or three days in a row,
but I prefer to act after the first close below the stop to protect
against the bottom falling out.
Jim
-----Original Message-----
From: Joel Beck <beck@xxxxxxxxxxxxxx>
To: meta <metastock-list@xxxxxxxxxxxxx>
Date: Sunday, June 28, 1998 3:20 PM
Subject: Using Stops
>I would like to hear other's opinions on the pros and cons of using
stops. I
>understand that they are necessary to protect your profits and limit
your
>losses.
>
>However, I've heard a lot of comments about how the specialists on
the
>exchange floors, use your stops "against you."
>
>I'm not sure what these people are talking about. Maybe some of you
folks on
>the list can expand on this subject, and give some advice on how to
avoid
>this if it is happening as well as open a dialog as the the various
kinds of
>stops that people use/prefer and the reasons why.
>
>Thanks,
>Joel
>
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