Quote from JoshDance:
Well, a tight stop does cause more stop-outs, but it also prevents what just happened in your case, namely, a fade gone wrong. I have found that if my trade needs more than 2 points to work, then I am 80% of the time simply off on the entry price or timing. A stop is where you are wrong on the idea. The thing is, you could look up and down the chart and make a case for numerous points where you might be "wrong." Look at the places where one could short this current up move. Which one means you're "wrong" that it will go down? Lots of people are shorting this up move, and staying in, and will either get rewarded when it goes back down, or reach the pain threshold and bail when it hurts too much. I prefer small doses of pain, even if they are more numerous.
Also, when I get myself in the hole early in the day with a -1.00 loss or even -2.00, then psychologically it's much easier to keep my mind focused and clear and on the current market. When I get -3.00 or -4.00, the need to get back to even takes hold, and I wind up overtrading and trading based on my current loss for the day, instead of focusing on the trade I'm looking to get in or am already in.
My best trades are the ones that I time well enough so that I only need a 1 to 2 point stop max. Any more than that, and for me personally (this is the key, as your situation may be different), I've usually entered too early, or at a poor price (usually because I entered too early) -- this is what I did this morning on my short that thankfully I got back in. Bad entry price due to not being quite patient enough. But then again short is not really where I should have been looking, but that's another can of worms and hindsight is 20/20.
People say exits are more important than entries, and for a trade in profit with a good buffer, then of course the exit is more important because the entry is already done. But a good entry allows one to operate from a standpoint of profit and not fluctuating between profit and loss. Take my words with a grain of salt; there are much better traders here that can chime in on their preferences. But in the end it has to be what works for you, regardless of what anyone says.
