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Hi Philip
I have added some answers within your text. It is getting a bit congested
in there so I have put them in capitals. I hope that helps.
Great discussion.
Regards
Simon
-----Original Message-----
From: Nixon(MLS) <mbjp57@xxxxxxxxxxxxxx>
To: Simon Townshend <UKTrading@xxxxxxxxxxxxx>
Cc: RealTraders <RealTraders@xxxxxxxxxxxxxx>
Date: 17 August 1998 11:30
Subject: Re: Enter on Stops ?
>Hi Simon, thank you for taking the time to reply in such depth. I guess
>my question was not put in the best way. I was asking about how you trade
>to try and get to the bottom of your idea that profitable traders use stops
>to enter whereas those who are not profitable are inclined to use market
>entries. I have worked in this business for 10years now and have come to
>realize that the key to most general assertions made such as this lies
>within the methodology (whether that be scalping vs swing trading vs
>position trading or Gann vs Elliot or breakout system vs whatever etc etc
>etc). I am not saying that you are wrong I just don't see a lot of
>difference (and lets assume that we are not talking about breakout or
>Stop-and-Reverse type ideas) between entering on a stop or market order.
IF YOU SET A POINT AT WHICH TO BUY WHEN THE UP TREND HAS RE-ASSERTED ITSELF
AND YOUR STOP ORDER IS IN YOU GET PICKED UP AS THE MARKET PASSES THROUGH
THAT POINT. IF YOU RELY ON SEEING THAT POINT HIT AND THEN PUT AN ORDER IN
TO BUY AT MARKET YOU MAY GET FILLED A COUPLE OF HUNDRED POINTS HIGHER IF IT
IS A GOOD MOVE.
I
>believe (and this is obviously not an original idea!) that where and how
>(i.e. money management rather than order type) a trader gets out of his
>positions is more important than how he gets in.
I AGREE BUT IT HELPS TO BE GOING IN ON THE RIGHT SIDE OF THE MARKET.
I was confused by a
>couple of the things in particular that you say
>
>
>> I am afraid I can not get my head round all of the methods of
>> measuring retracements and all of that. I have tried, but at the end of
>the
>> day I found that the only consistent way to determine if a retracement is
>a
>> retracement or a reversal is just to let the market tell me and pick me
>up
>> if appropriate and save me the expense if not.
>
>How do you know then where to put your stop order? Surely you have to
>define what a reversal or a retracement (fibonacci's, MAs, swing points
>etc) is to be able to anticipate that it might occur?
I THINK MY REPLY TO ANOTHER PHILIP SHOULD ANSWER THIS. LOOK AT YOUR CHART
NOW AS WE HAVE JUST HAD A CLASSIC EXAMPLE: RAN UP FROM 1058 TO 1076
RETRACED BACK TO 1072 WHERE (FORTUNATELY) THE VOLATILITY BACKED OFF FOR A
FEW MINUTES. GOT PICKED UP ON THE WAY BACK TO 1076, STOP BEYOND BREAKEVEN
BY THE TIME WE GOT TO 1076, SAILED RIGHT THROUGH WITHOUR ANY HESITATION
WHATSOEVER, TRAILING STOP HIT AFTER THE TOP PUT IN AT 1079, BEST PART OF
$1000 PER CONTRACT FOR INITIAL RISK OF 110PTS WHICH WAS UP AT BREAKEVEN
WITHIN 60 SECONDS
>
>>
>> 2. I do not enter on breakouts. If the retracement is so shallow that
>my
>> stop would be outside the previous swing high or low I pass up on the
>trade.
>
>but if you put your stop INSIDE the swing point then you are going to get
>caught if the market tests and rejects that swing point?
YES! AND BY THEN I LIKE TO HAVE HAD ROOM TO GET MY STOP UP TO AT LEAST
BREAKEVEN IF POSSIBLE THEN IT IS A WIN-WIN SITUATION!
>
>> Why? Where do you think everyone else's stops are? Whether they are
>> entering or taking a loss at that point all of the stops are clustering
>> above or below those points.
>
>But there is a good reason why they are 'all' there. The market has
>clearly determined that as a key 'decision' point. A break of that point
>is telling you something new and important about value and supply and
>demand.
AGREED
>
>>That is often what drives the breakouts. I do
>> not like slippage and that is a sure place to get it. (I know locals
>that
>> actually do the opposite for this reason. As the swing high is
>approached
>> they are buying, when the stops are hit they are selling into them,
>whether
>> the move continues or fails they have made some loot!).
>>
>> 3. If you enter on a stop the market is going your way as you enter.
>
>Don't you get slippage here as well then if the market is going the same
>way as you?
A LITTLE SOMETIMES, SOMETIMES IT IS POSITIVE SLIPPAGE IF THE PRICE IS
ELECTED AND TICKS BACK A TOUCH. ON AVERAGE THE SLIPPAGE IS MINUTE COMPARED
TO STOPS PLACED THE OTHER SIDE OF THE NEW PIVOT - AT LEAST THAT HAS BEEN MY
EXPERIENCE.
>
>> Usually it is 50+ points past your entry by the time you get your
>protective
>> stop in. Even if not when I take trades I am looking for a move
>instantly
>> and will trail a 110 pt stop as soon as there is 1 tic of profit so my
>> maximum risk (exc slippage) is 100pts. If we have gone 50pts to the good
>as
>> the stop goes in my risk is already down to 50pts. Do I get stopped out
>> with such close stops? Yes about 50% of the time I am out for a small
>loss
>> or small profit. About 50% of the time I catch a move leading to 100,
>200,
>> 400 + points profit. In summary if you enter in the right place on a
>stop
>> you can use very tight stops. If you are looking to enter on a limit you
>> must risk much more as you are entering as the market is moving against
>you
>> and hoping (for a very valid reason no doubt) that it will turn before
>you
>> get uncomfortable.
>
>I guess the above centers on what chart period you are basing your entry
>decisions on. I use a 5 min chart and keep an eye on the 20 period MA of
>True Range which gives me an idea of volatility. 5min bars are usually
>about 150/200 points which means that my stops can rarely be less than
>that. I therefore assume that you are using much shorter charts?
YES
>
>>
>> 4. If the bars are volatile, again I do not want to play. I know I miss
>> big moves but (a) I do not want to take such large risks and (b) the
>> slippage is wicked when the market is moving in 50pt+ increments.
>>
>
>I agree.
>
>Many thanks again for your in-depth reply.
>
>Regards
>
>Philip
>
>
>
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