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Subject: Re: Enter on Stops ?
I have some alternative points of view re: entering on stops.
I believe that Larry Williams' statement about "people using limit and
market order entries are usually the losing traders" isn't a statement so
much about limit and market order entries, as it is about the propensity
of traders with limited experience and knowledge to use those techniques.
I don't think it's appropriate to conclude from his viewpoint that therefore
limit and market position entries are "not good" (in case anyone had),
although Williams overall does seem to prefer stop entries himself.
I usually (not always, usually) enter using limits, not stops. (And if
I'm not entering on a limit, I'm usually entering on a market order.) My
reasons for doing so are:
* I get zero or negative slippage; I get in at or better than the price
I want (and yes, sometimes I don't get in, and if I think the risk of
that is high and I really want in, I use a market order; more below
on that).
* I usually get in at the bottom of the trading range, not the top. Since
markets trade in ranges (even when trending) more frequently than they move
in a "thin line", assuming ranging behavior and entering at the edge of the
range is "safer" than assuming significant directional movement and
entering on a stop when that directional movement occurs. To put it
more specifically; when is a "resumption of trend after a retracement"
really that versus the start of lateral ranging motion? In which case,
I've probably just entered on a stop on the wrong side of the range.
I've done that alot.
* Relative to a "structural" (versus relative to entry price) target, I make
more profit.
* Relative to a "structural" (versus relative to entry price) stop, I
suffer less loss.
An example of such a trade is my short entry into December coffee today on a
limit at 112.50. I think the market is going to range sideways a bit here, and
I wanted in on the "upper" side of the probable range. Turns out todays high
high was...113.00, I got lucky and called it pretty close (well, for today,
we'll see what tomorrow brings!) With this entry
I have the choice of scalping and exiting with a quick 500-700 profit
(price closed at 110.45, so I've got an open $750 profit, which could
disappear in a nanosecond tomorrow morning!), or hanging in there waiting
for a resumption of a downmove. I'm going to do the latter, and I'll probably
shoot for a profit target in the 106-108 range, which would give me a tasty
(I like coffee!) 1500-2400 profit, IF things go per plan.
I also entered today on a market order, short the December swiss franc.
With Friday's big downmove, it appears (to me) likely that sometime in the
next few days, SF8Z will get down to at least .6664 or so. It's got alot of
momentum down. Given the size of Friday's move, I wasn't comfortable guessing
todays level of retracement; indeed, none was possible. So I just dove in,
with a pre-placed stop and a pre-placed limit buy for profit taking. Here
I'm shooting for a very short term, quick $400-500 profit. Didn't
hit the profit target today, but I have some confidence I'll get it in the
next day or three.
As for the point of view that entering a limit order means entering when
the market is going against you: yes, tis true, from an intraday perspective.
(In fact, a nice order would be a "limit-stop" order, wouldn't it?) But I
don't view price action that way. I view it as a stream of vertical bars, and
my point of view as a daily bar trader is to enter on the far side of the
current (or expected) range, relative to where I expect the range to drift.
So whether the price was moving up or down when I entered isn't too important
to me. When I'm not expecting ranging behavior, and I think a move is afoot,
that's when I tend toward market order entries.
So there's some alternative points of view (with examples) to the "enter on
stops" philosophy, which I find FOR ME as often as not lead to positions I end
up not liking. It is a personal taste, experience, and philosophy of trading
kind of thing, imo, not a right/wrong kind of thing. Maybe it's just that
I don't feel comfortable with my skill identifying the lower risk stop
entry points, but I do feel comfortable with my skill identifying the lower
risk limit entry points. I have every respect for successful stop entry
traders.
-k
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