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I do not use stops. I do not know how. I do not know what good stops will
do for me.
If market is orderly why not to sell when all hope is gone or as Stewart
you can recognize that you made a mistake.
If market is disorderly (Crash of 87, Mr. Boevsky mini crash, and recently
Mr. Greenspan anti-exuberance) then the vary next bid (ask) would be limit
down (up) and recently (with adolescent SP at $250 a pop) two consecutive
limits down (up). At best the next tick would be as far from the recent
price as market will go. And those market makers are pretty good at
estimating how far market will move.
So, would I have a stop, I would be stopped out at the extreme of the swing
(many, many old full SP points from the current price).
Speaking of stocks, I love the stops. You buy the stock and place the stop.
The vary next trade from what you bought is (oops) a halt in trading. The
company is in bankruptcy. Your stop will be executed at 1/64.
What would I do? For day traders in normal and vary liquid markets I guess
stops are OK. But be prepare for the total loss of capital at risk (plus
some more). Use money management, trade managements or whatever they call
it nowadays.
For position trader you are getting in vary vary slowly. First with coffee
money, then when market prove you right a little bit more, then some more
and when you are absolutely sure that you are right, you sell because it is
time for market to change directions. You get out of the market and start
argue with fellow traders on your favorite discussion list waiting for the
next opportunity.
As of using options to protect your position. If you thinking to do it
ether when you are entering trade or when you fill that you may need
protection then congratulation, you are not alone. The person who is going
to sell you option fill exactly the same way. So the price of the option
will be equal or more then the possible adverse move in your future or stock.
Alex.
At 12:58 PM 6/24/99 -0500, Stewart Taylor wrote:
>
>Less and less as the years have gone by. Im pretty aggressive and
>oftentimes I run close stops. In fact, I had a lot of trouble learning how
>to keep my stops intact and often felt pretty helpless over the early part
>of my trading life.
>
>I do try and recognized when a trade isn't working out and exit before my
>stop is hit. Probably 1 (if Im trading well) out of five get hit.
>
>>I've watched as traders have used stops in about every way you can
>describe. >Time after time they get burned.
>
>Again, I think it comes down to learning to recognize setups and patterns
>that have a high degree of correlation with change. I seldom trade a
>breakout in terms of going with it. However, once a market has broken out
>I will wait for a corrective pattern to set up and then buy/sell the thrust
>from the pattern. This puts you away from the best entry point and further
>from your initial stop, but by making the market prove it to you by
>thrusting you vastly increase in the odds of the move continuing.
>
>I also seldom make the assumption that support or resistance is going to
>hold. I use to get stopped out a ton just by buying oversold at support
>and selling overbought at resistance. Now I make the market prove it by
>running the stops (spiking above resistance and failing for instance) or by
>thrusting and taking out a level either beyond either support or resistance.
>
>
>This is a good example of a market where the stops have been run and it is
>a fairly safe bet to enter (not a recommendation).
>
>As far as getting burned, it happens. It is a cost of survivorship.
>
>Sure if you can keep track of all the
>>potential events that could make the market explode you might be ok.
>
>Stewart Taylor
>Taylor Fixed Income Outlook
>Voice: 501-219-9774
>Fax: 501-228-0963
>E-Mail: staylor@xxxxxxx
>Web Site: http://www.cei.net/~staylor/
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