What an impressive thread this has been. And on a topic of the utmost importance.
I think the important thing about long stops or even no stops is that you have to wear the loss situation, which besides being expensive is also very tiring psychologically. You end up buggered after sitting for a couple of hours in the red wondering and hoping for a break even. You seldom ride through a drawdown and then keep riding the subsequent win. You're just that thankful of getting out flat. Moreover you then generally give it away for the day...you're done.
I've found that I'm most comfortable with very tight stops. I trade the way I drive fast. The tight stop is a warning beep that tells me to correct...that is get out . A long stop is like waiting for the car to spin out and so suffer possible damage to car and driver's mental attitude (loss of confidence). That doesn't mean that you lose on the set-up, but rather that, after correcting you are free to get back in, albeit two or three ticks later.
You focus less on the set-up (the TA of it all) and more on your actual seat of the pants driving feel. Are you gunning hard and fast, and recovering quickly, unmindful of a couple of slip and slides along the way? Then the game is really enjoyable to play...and your tally of points for the session is only revealled at the end of the day.
I usually run on a two point stop and the lowest brokerage costs I can find. Off course I chase the most liquid markets; that's where the most money is swishing around.
By the way these are not the confessions of a scalper....I don't have any set profit targets but simply ride the trade for as long as I can.
I once read a survey of the relative efficiency of stop losses. The trade was taken at the open and exited at the close of trading for the day. The period surveyed was over ten years. The stop loss parameters went from a one point stop to a twenty point stop. Guess which parameter worked most profitably over that period with, by the way, a below average drawdown....the one point stop! And this held true for all sorts of random entry trials that were also tried, such as buy on Monday's open and Sell on Tuesday's open and vice versa. Sell Mon and Buy Tues. Other trials involved alternate days and even intraday trades such as buy 11am sell 2.30pm etc. The next best parameter was the 2pt stop. From memory the profit factor for a 1pt stop was 1.6 for a 2pt stop, 1.3 and then the PF fell away quite sharply to an average of .5 for the rest.
The test did not involve a no stop parameter which was a pity. Gordon G's assertion that a no stop-loss trade is the most profitable is very interesting, but could be a total blow out for the day when the market doesn't return. A statistical run of several days within a cluster of weeks like that would result in an unacceptable strain on one's emotional well being not to mention one's capital base. I've been down that road and I don't like it. That's when you find out how heavy a mugging the market can dish out to you...while you look haplessly on and feebly say, "this can't be true, my system says it can't happen!"
"The real sequence of bad runs is always greater than the theoretical potential." you can call that Matt's law of disappointment.
In the mean time adjust your swivel chair, watch the tachometer and go for it.That was Pop's first injunction before he even mentions his first Rule 1#. His second injunction was to defer to a higher calling than simply making money.
