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Linda
As a generality it is always better for the market to prove you right,
rather than wrong. A lot people place their stops on a monetary basis or
through some indicator or moving average and then wait for them to be hit.
That way their stops get hit more often anyway. The reality is that if you
have worked out the risk/reward of your trade and set your stop according
to the market and not money, you should then let the market prove your
strategy correct. If it doesn't you are out, usually well before your stop
is hit. If it proves you correct, it is doubtful that your stop will ever
be in jeopardy.
By the same token, if you have set the r/r/r according to the market and
the prevailing conditions and not money, then when your trade is looking as
if it is on target, set a profit stop with a limit order and collect.
With the correct r/r/r you can afford to lose an appropriate amount that
allows you to take all the trades you should be taking. Then, if your
original trading strategy is right, you will find that letting the market
prove you right is a great deal more satisfactory than waiting for it to
prove you wrong. Coming out sooner, rather than later effectively
increases the r/r/r. If you wait for the market to prove you wrong, the
normal stop-and-reverse policies give you a bad fill getting out and a bad
fill going the other way; with having to be proved correct, you will
profit from 'cheaper' stops as it were. You will also feel more
comfortable with the market always being right!
As you might expect, there are quite few other factors that have to be
taken into account, to produce a cohesive policy, but I hope this helps.
As usual, my experience is based on the most liquid market of them all, and
the conditions in the bonds may very well be quite different to the
market(s) you trade. I have to say that it is the difference from most
markets that makes all the difference!!
Bill Eykyn
www.dbceuro.com/bille.htm
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