Blown stops and reversals

K

kowboy

Yes, I believe TA forms the basis and structure for potential trade setups. Unfortunately a TA swingtrade setup can be easily derailed by something unexpected like a change of broker rating or by strong institutional buying or selling, blowing through stops. This happened to me twice in two days on two different stocks. At that point, the ony thing to do is exit, stand aside and possibly reverse positions. But I was too slow on the trigger in both cases to reverse.

I've heard that institutional buying/selling is a large proportion of the market (60 to 75%??). Analogous to standing in front of a freight train if it decides to move. In these cases, I would like to train myself to get on board instead of getting run over.

Does anyone else use reversal of positions when their stops are blown, or do you just go on to another trade?
 
The answer to your question all depends on why the stock hasn't performed as I expected. If the news is truly damaging to the company's fundamentals, then I will often exit and move on. But if there is a sudden move based on news or analyst B.S. that isn't long-term damaging, I will often stay with the trade or even add to the position. This is particularly true in the current bull market environment, because the rising tide will often help you out of a trade gone bad, so long as you stay on the long side.

I've learned through experience that it helps before entering a trade to be certain that this is a stock I believe in, and that I am willing to stay with if necessary. If I'm in doubt, I stay out, because there are always new trades on the horizon. That's also why I only take on stocks with excellent fundamentals that are showing temporary weakness. If you are trading only technicals, you often won't have the confidence to stay with the trade, and in fact, often you shouldn't.

Also, if you have backtesting capability, you might want to look at a time stop, instead of a set percentage or point limit. Generally I will give a stock 10 days to perform before deciding whether or not to get out. Buying into weakness or pullbacks often requires giving the stock a wide area to swing in, and giving it time to reverse into a profit. But again, the whole key is to be careful of what you are buying in the first place.
 
You just gotta see it. If you can have a plan to adequately identify that your long is now a short then why not short it. Reversal of a position should agree your particular style of trading. Many seem to revenge trade so maybe it would be better for them if they only traded it once.
 
Quote from kowboy:

Yes, I believe TA forms the basis and structure for potential trade setups. Unfortunately a TA swingtrade setup can be easily derailed by something unexpected like a change of broker rating or by strong institutional buying or selling, blowing through stops. This happened to me twice in two days on two different stocks. At that point, the ony thing to do is exit, stand aside and possibly reverse positions. But I was too slow on the trigger in both cases to reverse.

I've heard that institutional buying/selling is a large proportion of the market (60 to 75%??). Analogous to standing in front of a freight train if it decides to move. In these cases, I would like to train myself to get on board instead of getting run over.

Does anyone else use reversal of positions when their stops are blown, or do you just go on to another trade?
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Reversing wouldn't work for me. Before I enter a (swing) trade I need to see (a) proof that prices are trending (b) recent support or resistance close enough to give me an acceptable stop and (c) an initial profit objective that, together with the stop, provides an acceptable risk-reward. So being stopped out shows me either that the trend has ended or that I was wrong and there was no real trend. In order to go the other way I'd need to see evidence of an opposite trend with acceptable risk-reward etc. and that almost never happens.
 
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