Quote from ammo:
sounds good except for the 1 -2 tick loss,seems a little tight,you'll take a 2 tick loss and then the trade goes your way
If you let your greed get the best of you, you will keep widening your stops so as not to miss any moves.
The above strategy is a very low risk strategy for entering trades. What you are looking for are trades that quickly move in the expected direction. If prices do not quickly move in the expected direction, just exit the trade for a small gain or loss and wait for the next trade set up.
Let me give an example. Let's say there is strong overhead resistance and prices have been trending up for a while so a lot of the buying energy has been used up. If prices stall in the resistance area, I will place a limit order to short 1 tick below the high it just made in the resistance area. When filled, I place a stop 4-6 ticks above entry price (it's above the resistance area and recall that it is a catastrophic stop that I never expect to get hit).
This is a high probability setup. Most of the time it will bounce off S/R and quickly give me my 1st profit target. If prices start to go against me, I exit as close to BE as possible. If prices just go sideways too long, I reduce my profit target to 1 or 2 ticks to try to get something out of the trade.
Here is a quote from Mike Reed's "10 Steps To Professional Day Trading":
"Practice exiting trades at break-even, using a one-tick target, a two or three tick soft stop (mental stop) and a 1.5 point hard stop. Never *allow* the market to hit your hard stop. Exit by moving your target toward your hard stop, not by moving your hard stop towards your target. With time, all of this must become a reflex. You won't always be able to keep your losses down to 2 ticks, but only on rare occasions should you find yourself letting the market hit your hard stop. ("Rarely" means only about once every 50-100 trades after you get the hang of it.)"
