Rule of thumb for trading: the more volatile a market, the smaller a stop that's required
My rule of thumb is the exact opposite
CL Redux
- Thread starter schizo
- Start date
My rule of thumb is the exact opposite
Rule of thumb for trading: the more volatile a market, the smaller a stop that's required
Assuming that the market is actually trending strongly or breaking out, yes.
If not, you'll churn your account rather quickly with a ten cent stop, no?
Cause i wanna be rich (or richer), i don't need a job.
Awesome. Did you not make any coin as a day trader or is it more of a lifestyle decision or that you're making more swinging?
If you don't mind, please answer in the "is day trading worth it" thread.
If any market is churning sideways, you will churn your account with any size stop. When CL rolls thru a 30-cent or 40-cent sideways range for hours, even a -20 cent initial stop will be repeatedly hit unless you try playing mean-reversion games. Soon as price action breaks out, your mean reversion attempts will get hammered.
Nobody rings a bell when a market is churning sideways or breaking out of a sideways churn. Nobody knows if the second or third or fifth or tenth tap of support/resistance will hold and turn, or bust wide open and run, or fake-out break and reverse hard back inside.
Because nobody on earth knows which specific trade will follow thru or get chopped, traders use stops to control risk. Because of that, CL has gone from being the absolute best day-trade instrument for years on end to just another pedestrian futures symbol merely equal to most and inferior to a few others.
Or you could trade with low leverage and use a disaster stop instead.
After all, I thought markets told you in advance where they wanted to go?
If so, use a wide stop, wait for the market to go where it projects even though it whipsaws for a while before it gets there and then get paid.
You don't mentally accept the reality of statistics that I've explained over and over and over again. The market sure as hell tells you, me and everyone else who can measure a 5min chart exactly where price will trade to... more often than not.
Get it? More often than not. What no one can ever tell for sure is how the path of price action will get there in the majority of moves that fulfill, and no one can tell which individual trades will be part of the majority that fulfill OR the minority that fail. So therefore you cannot simply enter any single trade with bias of future projection, set a mile-wide stop and hold it thru hell and low water. Why? Because your statistical edge comes from ten or twenty or one hundred similar trades... blended results.
Does that now make perfect sense? Maybe next session is the ripper from hell, and a string of losses in your normal statistical curve hits from trade one. That doesn't mean the price-action study is crap or does not work. It means this day was part of the normal distribution that makes your overall edge.
This is why traders have tried the "scalp tiny profits using mile-wide stops" folly since before either of us were born. They cling to the loser mentality that each single trade has some sort of meaning or edge to it, when in fact there is none. The only meaning or edge you can create exists in a series of similar trades, lumped together.
Wouldn't it be fun to debate this sort of thing with traders?
I assume with traders there would be no debate.