If You Can Draw A Straight Line . . .

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Quote from bmwhendrix:

DB, Where do you generally place you initial stop? Just past the 50% pullback area?
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In another forum, dbphoenix answered along these lines:

"The purpose of a stop is not to protect you from loss, except the catastrophic kind that can occur when the server goes down or the internet connection is lost or the power goes out. Too many (all?) beginners place stops as if they were sacrificial offerings to the trading gods, and if the trade begins to grow wrong, they wash their hands of the responsibility and leave the outcome up to the stop.

This is nonsense.

The cover stop is there for the reasons I gave above. It has nothing to do with the management of the trade per se. If and when the trader perceives that the trade is going wrong, using whatever criteria seem best to him, he then exits the trade. And that's it (except for cancelling the cover stop). Where you've placed your "stop" here is a fine place to exit if things stop going your way. But the cover stop should be much lower.

Db "

You can read his entire response, and the post he was responding to here: http://www.traderslaboratory.com/fo...-trading-90-minutes-archive-7.html#post156377

Keeping in the spirit of Db's quote about stop losses, here is what I do:

1) I enter a trade with a stop-limit or at the market, depending upon circumstances and how quick I am to recognize the circumstances.

2) I trade with Interactive Brokers, and my platform is set up so that an entry order is accompanied by a limit order 20 points from my entry as a profit taker and 5 points from my entry as a stop loss (I used to set these myself, but after I forgot to cancel an outstanding stop loss I decided to use the "bracket order" function - this way once one of the orders is filled, the other is auto cancelled by the platform).

3) I use the profit take order to exit the trade (though sometimes at a small loss rather than a profit), and I often change it to a market order, though sometimes I adjust the limit price to a reasonable S/R target depending upon circumstances, time of day, and so on.

4) The initial 5 point stop loss is there for the reasons dbphoenix gives - it is "just in case" the internet goes down, the broker goes down, or I go down. I never move that stop. It only exists to protect me in case of a situation where I am in the market and I am prevented from taking the action necessary to get me out of the market. I do not trail the stop. I do not move it to breakeven. In keeping with the spirit of responsibility, I decide when I take my profit or my loss, and I press the button myself.


EDIT: I did not see that you had answered already, DbPhoenix. I hope my response isn't too redundant.
 
Quote from fortydraws:

EDIT: I did not see that you had answered already, DbPhoenix. I hope my response isn't too redundant.
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After 15 years and 20k posts, that ship sailed long ago :)
 
Quote from dbphoenix:

After 15 years and 20k posts, that ship sailed long ago :)
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20k posts? I haven't read them all, but I sure am grateful for the effort you put into a good number of them.

If nothing else, then, my post may serve as an example of how someone might take your approach to help build his own trading plan.
 
Quote from fortydraws:

If nothing else, then, my post may serve as an example of how someone might take your approach to help build his own trading plan.
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It may. With the 30k+ views this thread has had, there may be a half-dozen people who are genuinely interested.

Since it's now been nearly twenty years since the first reasonably sophisticated charting software became available to the little guy, followed several years later by discount brokerages, and several years after that by trading forums like this one, few people are still around who remember how things used to be. Their programs come loaded with dozens of indicators, each of which has dozens of settings, and all kinds of bars and candles and whatall, so surely all that should be used. And the vendors are everywhere, pushing this indicator or that pattern or whatever else, making it all seem so difficult that the novice absolutely must rely on the vendor to clear the way or else risk ruin(my setup is better than his setup nyah nyah).

Trading price, then, becomes a thoroughly alien concept, with a language that is virtually incomprehensible. How, for example, can one conceivably trade without candlesticks, or moving averages, or even *gasp* bars? And given the youth of those who populate the internet, trying to compare how things are with how things used to be (trading by price alone has been around for centuries) is pretty much like talking to oneself.

So I've abandoned the effort to correct misinformation. Anyone who's interested is welcome to contact me and make the journey (journey . . . journal . . . journey . . . journal). Otherwise, I've said what needs to be said and said it many times over. Many many times over. And it's there until the internet winks out. So I can move on to other things, and the kids can argue amongst themselves regarding truly important subjects like whether "TA" (which is always defined incorrectly) is subjective or objective, and what the best MACD settings are.
 
The price is not dropping after reaching 130. It has started to consolidate a bit. It could be what Db calls The Dog That Didn't Bark. I would be either long or neutral here. Shorts are not suitable until price shows some weakness.

These are one of those exciting time when the end of day trader can show what's happening with price and learn from it. The intra-day traders get a lot extra screen time that in my opinion gets them to acquaint to pure price behaviour faster than a longer bar interval trader.

The trend is up and we're waiting to see price behaviour around here.

Can price go above last swing high?

If yes, how? Is there strength behind the move or is it with difficulty?
If not, how? Was it with difficulty price dropped or was it fast and easy for supply to take over?

These are the kind of things looking only and price and volume will a trader need to estimate the possibility of entry a trade or not.

Ok lots of talk. Lets get to the daily chart.

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From mid May onwards the price swings have become wider, implying greater volatility.

Gringo
 

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Here is the price situation for GLD. Here again the TL has been breached. Now TL is dependent on the person's discretion and the horizontal consolidations have more value than the mere visual breach of a TL.

Price is 'not' dropping, which is an interesting clue as well. We simply stay alert to weakness developing leading to shorts or 130 area getting another visit by price.

Here's the GLD daily chart:

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I prefer a clearer retracement or a test after trend line breach. But tying ourselves to how we want things isn't how price behaves. Still, it doesn't mean I jump in, as I have to choice to not initiate a position if doesn't meet my entry criteria.

Another thing to note is the supply line breach and a higher low. Now that's within the trend channel. Some who are aggressive could have used that to attempt long and perhaps they would have been rewarded for their alertness and bravery. Longer term trend changes do breach the trend line eventually. Considering the potential support was around 115 that would have added some credence to the behaviour of those who went long. This is to show that even though we're all looking at the same price our unique personalities and risk tolerances may make us initiate positions at wildly different times and spots.

Gringo
 

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Here is my Daily. The pink lines are basically just a channel with a 50% line. I drew the teal channel which I consider curve fitting based on my drawing rules.
 

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