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Mervin Yeung wrote:
>
> 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.
I'm sure the locals run the price up and down either following micro
trends themselves or even trying to get the mkt to places where they
believe stops are concentrated, based on the *charts*. But do you
really think they know where the actual orders are? Perhaps this isn't
that important a point - if you tend to get stopped out, who cares if
it's random noise, or the pit going after your stop specifically? But
if it is an ungrounded fear that makes people tend to not put stops in,
then I think it's a question worth asking.
My belief is that in almost all cases (barring some illegal activity),
the locals (and off-the-floor daytraders) do not know where the orders
are. They simply are trading very short-term, either as trend followers
or contra-trend. The trend followers would like to get on board
*before* the trend, so if the market is wandering upwards and they think
it could go thru some stops they will buy (and conversely the contra
trend locals will stand aside). This extra buying may actually help
push the mkt thru the stops. (But if it fails to, then the locals lose
money.)
If you are a position trader, maybe the key is to place the stop far
enough away that most times, if it is hit, it signals a true reversal
(even if temporary). Most of the time my stops are hit I'm glad that I
am out. (I know you really can't separate them, but my problem seems to
be more entry selection and profit taking, than stop.)
Conrad Bowers
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