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Both entry selection and stops should be definitive numbers. A system should
tell you when you are wrong. If you have an entry to the upside, there is
usually and entry to the downside lurking. If you don't have a logical stop,
shouldn't your stop be at the entry in the opposite direction. I am not one
for trading reversals. I believe that each trade should be made with a clear
head. If you have a position you will defend it. Money stops are the easiest
way to get stopped out and go broke. Ira.
cb wrote:
> 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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