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Larry Williams once said that a trader who enters positions on limit or
market orders is likely to fall into the category of the 80% that lose and
that winners will almost always enter on stops.
The logic seems pretty clear; if you are stopped into a position at least
the market is moving your way before you join the move. The downside is
that you have to risk a little bit more as your protective stop by default
is further away. That is probably why the 80% (apparently) prefer to hold
out for their limit orders to be filled which actually is crazy if you think
about it as you are then playing the catching falling daggers game.
My day trading profits have only really kicked into being worthwhile and
consistent since I did two things:
1. Only using a market with a decent daily range where there was room to
enter on stops without using half the days range to get to my order i.e.
going into the S&Ps and leaving behind currencies, bonds etc. and,
2. Only entering positions on stops.
One or the other may be the reason I finally cracked day trading, but
actually I think it was both.
What got me thinking about this all over again is all the discussion (mainly
on TV) about the stock market having sold off and people (supposedly
knowledgeable people) talking about holding out for just a bit more before
buying these bargains. I wondered if these people were mad or just having
us on!
Any thoughts?
Simon
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