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In a message dated 8/12/98 12:30:41 PM, rkurzon@xxxxxxxxxxxxx wrote:
<<I've wondered about tying my stops to something other than a fixed
dollar amount. Perhaps relate them to the most recent range so that the
stop would have some relationship to volatility. Thoughts?>>
Be careful about making unnecessary either/or decisions. Why not do both?
If you rely entirely on a volatility based exit you might encounter at least
two serious problems.
1. The market can become so quiet that your exit never gets triggered. For
example if you exit is 1.5 ATRs from the close each day. What if that never
happens?
2. The market can become too volatile and your loss can be too great. In our
Crude Oil system we use a profit target measured in units of ATR. On one
trade the profit was about $3,000. On the very next trade the same units of
ATR gave us a profit target of more than $12,000. Now what if that had been a
stop loss instead of a profit target? I always like to know what my worst
loss is likely to be measured in dollars. In most of my systems my other
stops will take me out well before the dollar stop is ever hit. However I’m
always glad to know that the dollar stop is there. I’ve been in the corn
market when it moved more than $1.00 per bushel in a day so anything can
happen and you have to be prepared.
Regarding day trading - I’m told that there are some traders that are very
good at it and I’ve actually met two or three. It’s hard work and you have to
enjoy it but it should be very rewarding if you can do it. Personally, I’ve
reached the point where I would rather be out playing golf than sitting in
front of a computer screen watching tick data. However there was a time when
that was not the case and I was a traderholic who craved action. I even used
to trade pork bellies.
Chuck
traderclub.com
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