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Hi RTs,
I want to add something here: if your system uses stops, then you have
already made an assumption. The assumption is that your stops will not
affect the market behavior. (which is NOT true, I believe)
Everytime you place a stop, you have an opportunity to write history.
Whenever your buy stop is filled at daily high or your sell stop is
filled at daily low, you are actually writing history. When you test
your system on computer on historical prices, your computer will not try
to touch your stops. But, when you follow your system and actually
place a stop in the market, pit traders will try their best to reach
it. Pit traders want to create higher volume to ensure market
stability. They also want to have some pocket money. Therefore, the
price behaviour changes once you put your stop. Unfortunately, this
type of change cannot be detected when you test your system on
historical prices. Maybe one day in the future, human will develop an
artifical intelligent computer who is smart enough to hunt your stop.
Mervin
MRLYNNG@xxxxxxx wrote:
>
> If you trade for a living or want to, the use of stops should be a guide to
> you about the quality of your methodology or system. They tell you if your
> entry and stop placement are consistent with each other. Traders can have a
> great entry method and still sustain frequent losses if their perception of
> market support/resistance is not compatible with their system.
>
> Physical stops are REQUIRED in order to evaluate the proper placement of
> stops WITHIN your system. Having trained a few traders I will qualify this
> next statement as my opinion but if you do not use physical stops, then you
> are paper trading with REAL money. When you have a mental entry, don't you
> call it paper trading? Well a mental stop is paper trading with money that
> has already been committed to a trade and that is dangerous. Every trade
> MUST have both an entry and an exit. If you only have an entry and no exit
> then there is no system, no methodology. The stop helps to define part of
> your system so learn from it, adjust it until it enhances your entry and
> works for you not against you.
>
> One final point. The use of a system requires discipline and patience even
> if you are scalping the market. Placing a physical stop is part of that
> discipline. Use that discpline to refine your methods/system. Most traders
> evaluate their entry but rarely evaluate their stop with the same intensity.
> If you are getting stopped out too frequently, realize that "based on your
> entry", the stop must be placed further away. If the risk involved with the
> wider stop is too large for your account, then recognize this before you have
> lost everything, not after. Your stop can teach you many things if you will
> only listen.
> Lynn
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