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I think this discussion of stops needs some amplification. There is more
than one reason to have stops IN THE MARKET. One is for money management
purposes. The other is for emotion management.
Much like Stewart and Bill, I trade with patterns - Elliott Wave
patterns - but patterns just the same. And, I always use stops. I know
sometimes I get caught with everybody else and have bad fills and the
like, but it is important, especially for inexperienced traders. It is
very easy to get caught up in hoping that your position will come back.
Recently, I had put on a trade - a day trade - which did not go my way.
I did not have stops. I did not follow my own rules. There was a
POSSIBLE analysis that said it was okay for this thing to go against me
for a little while, so I did not put stops in. Unfortunately, the better
analysis was that it could go way against me. But, I HOPED that it would
go my way. I had no stop and I lost big. No stop, no emotion management.
If I had gone with my analysis at the start, and placed my stop, I would
have either been hit for a small loss, or would have been more
realistic, realized the market was not working according to my analysis
and gotten out at a profit (initial move was in the right direction but
with the wrong pattern).
The other point to realize is the horrible fills, more often than not
can be known ahead of time. By this I mean, stay away from bonds before
Greenspan speeches, major data, etc. Then you can place stops
intelligently. Can the boys on the floor run them? Yes, Baldwin does
sometimes when the market is slow, but that is the risk you must take.
Do people trade w/out stops? My old boss did. But he was experienced,
had all the flow info (primary dealer desk head) and had made millions
trading bonds for many years. He considered stops a free option for the
guys in the pits. But, mere mortals, and beginners cannot do that. I try
to avoid ever seeing my stops hit, since if the patterns do not develop,
I often get out ahead of them, but there is no guarantee that is doable
and the risk of a bad fill is better than the risk of no fill, a
hesitation and a continuation to turn a 1/2 point loss into a full point
or worse.
--
Steven W. Poser, President
Poser Global Market Strategies Inc.
http://www.poserglobal.com
Tel: 201-995-0845
Fax: 201-995-0846
Email: swp@xxxxxxxxxxxxxxx
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