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Tim,
Quite an informative post! I wonder if you ever use a "stop-and-reverse"
approach during the day - if so, what are your criteria?
Thanks,
DC
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Sent: Thursday, October 26, 2000 10:30 AM
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> From: Timothy Morge <tmorge@xxxxxxxxxxxxxxx>
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> Date: Thu, 26 Oct 2000 09:32:56 -0500
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> Subject: Re: [RT] How Valid is Taylor's 3-Day Cycle Theory and...
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> Brian:
>
> In markets like the past two days, I find that to trade and make money, I
> have to be more persistent than in more subdued or 'normal' market. These
> are very volatile markets and constant tug of war going on in the index
> markets can stop you out of your position right at the top or at the
bottom.
>
> When I was an institutional trader in the early 1980's, I was an assistant
> to a senior trader and she constantly reminded me that good traders often
> buy the top and sell the bottom--It's what you do after that that
determines
> the outcome of the day. On day's like yesterday, you need to be
persistant.
> Don't violate your trading rules, but you may often have to jump right
back
> in after getting stopped out without much 'down time.' If you can't be
> persistant [because either your capital won't allow it or because your
> methods do not allow it] either stop for the day after being whipsawed out
> once or play smaller and try to be more persistant.
>
> Here's an example:
>
> I was short several units coming into Tuesday's market. I had stops in at
> 1427.75. I was stopped out at my price [not very far at all from the high
of
> the day. After getting my fill on my stops, I watched the market trade
> listlessly around the 1425 area and when price didn't immediately begin
> marching over 1428 again, I sold again, and put stops above the market. I
> rode these shorts through most of the day. I snugged my stops down to
> 1413.50 at one point, but while I was watching the last 30 minutes of
> trading, it seemed obvious to me that the S&P pit would try the same short
> squeeze near the close that it had used so effectively on Monday's close.
I
> cancelled my stops and watched price run from the lows of the day right up
> to my stop area of 1413 and change...and then turn down hard after the
cash
> close, finally closing at 1403 [what a whipsaw ride! Imagine how many
> traders whipsawed themselves out of their position on this wild ride!]. I
> had a partial profit order resting in the market at 1391.75...
>
> When I walked into my trading room on Wednesday morning, I was filled on
my
> partial profit order at 1391.75. I refreshed my analysis and thought we
> would see a very aggressive sell off and test what I considered to be
three
> important support areas: 1389, 1376 1/2 and eventually 1364. I was now
only
> short one unit, so I wanted to 'reload' to a full three units. I re-sold
my
> second unit [which I had taken profit on at 1391.75] at 1393. I then
worked
> an order to sell a third unit at 1398 and I initially put a stop on the
> lowest add at 1400.75, thinking that if price filled the gap, we might run
> into the low 1400's and perhaps as high as 1405 [outside chance of running
> to 1409, which seemed to be what I call an acceleration level] and I did
not
> want to be fully short above 1400.
>
> After running down to 1385, the market screamed out of the hole and I soon
> sold my third unit at 1398. And my 1393 add was soon stopped out at
1400.75.
> I had an additional stop in at 1406 for the second unit, which did not get
> hit. It quickly became apparent that price was not acclerating to the
upside
> above 1400, so I sold my third unit again at 1399.50. Price never really
> tested the upside again and I was filled on my first profit order at 1382
> and my second at 1377.
>
> The point I am trying to make is that often, the areas a trader identifies
> for stops turns out to be a critical area--so critical, in fact, that we
> often do not give the market enough room to test and fail at that area.
You
> can address this two ways: Either try using wider stops [if you can afford
> this...if you can't, make certain you are not over leveraging your
trading]
> OR keep using the same stops but be agressive in re-entering the markets
> when you feel certain the market has tested the area you thought was
> critical and then returns to the direction of the trend, indicating a
> 'successful' test.
>
> I hope this is clear. And helpful in these frantic markets. I can't stress
> enough that it pays to be underleveraged in these conditions, because you
> often have to take a few losses to find the fast lane to your profit
levels.
>
> Best,
>
> Tim Morge
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