Premature stops with heavy intraday action

Chadwick · Jan 10, 2006

Just wanted to hear some thoughts others might have on this topic.

I generally set my stops according to a few variables: ATR over the period of the prevailing trend, intermediate or primary; the support level in the channel that has developed (if there isn't one I'm likely not entering anyway). If my calculation comes out < 2% (it's actually happened with very slow-movers) I just keep it at 2%.

That said, I find that I sometimes get premature stops around the open. For example, I was stopped out of RES yesterday when the low for the day hit ~2% below the open. It then closed up and had a nice rally today with ~4% additional gain.

I'm finding a lot of my otherwise successful entries go this direction. I've considered simply ignoring the open and going for later in the day, but that presents problems too. Thoughts?

Mike805 · Jan 10, 2006

I think you may need to think about setting stops in a different way. Note that trading is a very personal thing, what works for someone may not work for someone else, but, maybe I can provide some decent input.

Price zones, especially zones that demonstrate tight consolidation (intraday only) are my guide in stop setting. If you look carefully at areas just above and below consolidation areas you will notice one of two things, weakening volume and stable price or strengthening volume with a strong moving price. The former tends to be a "stop test/take" where those who made poor entries are getting out. The latter will be a price continuation, a stop running/taking along with new selling/buying that will more often than not take the price further away from the consolidation.

What does this mean in terms of stop setting? Well, for me, I like to see what happens at these points before I make my decision. I am working on the belief that the more stops above or below the consolidation the better the price follow-through will be when the consolidation range is broken. This also means that I treat ATRs as guides to where the stops are going to be.

murray t turtle · Jan 10, 2006

Quote from Chadwick:

Just wanted to hear some thoughts others might have on this topic.

I generally set my stops according to a few variables: ATR over the period of the prevailing trend, intermediate or primary; the support level in the channel that has developed (if there isn't one I'm likely not entering anyway). If my calculation comes out < 2% (it's actually happened with very slow-movers) I just keep it at 2%.

That said, I find that I sometimes get premature stops around the open. For example, I was stopped out of RES yesterday when the low for the day hit ~2% below the open. It then closed up and had a nice rally today with ~4% additional gain.

I'm finding a lot of my otherwise successful entries go this direction. I've considered simply ignoring the open and going for later in the day, but that presents problems too. Thoughts?

============
Thats a strong stock in a strong oil/gas sector;
so thats in your favor also.

52 week highs in your favor also;
that happened on a higher priced /lower % gainer stock in the same sector on JAN 9 th also.

You may have noticed, however in a top % gainer like RES, priced about the same as CHK[28-$32...] that happens more than in higher priced stocks.And the higher priced usually dont gain as much %.
Its a personal matter, like higher priced stocks usually;
even though that may cut some upside % gains.

And even though its a higher priced stock, & perhaps a takeover target, stopped trading for a while APC, for the reason you mentioned, a bit to much on the downside. And except for the takeover target aspect ,probably not as much upside potential/APC, as RES or CHK has shown.

Chadwick · Jan 10, 2006

Quote from murray t turtle:

============
Thats a strong stock in a strong oil/gas sector;
so thats in your favor also.

52 week highs in your favor also;
that happened on a higher priced /lower % gainer stock in the same sector on JAN 9 th also.

You may have noticed, however in a top % gainer like RES, priced about the same as CHK[28-$32...] that happens more than in higher priced stocks.And the higher priced usually dont gain as much %.
Its a personal matter, like higher priced stocks usually;
even though that may cut some upside % gains.

And even though its a higher priced stock, & perhaps a takeover target, stopped trading for a while APC, for the reason you mentioned, a bit to much on the downside. And except for the takeover target aspect ,probably not as much upside potential/APC, as RES or CHK has shown.

I'm long CHK as well and got in again (I was long before the October drawdown) ~$28.

I still like RES and will likely consider reentry, but it's intensely frustrating to be stopped out like that only to see it rebound right after; live and learn.

Chadwick · Jan 10, 2006

Quote from Mike805:

I think you may need to think about setting stops in a different way. Note that trading is a very personal thing, what works for someone may not work for someone else, but, maybe I can provide some decent input.

Price zones, especially zones that demonstrate tight consolidation (intraday only) are my guide in stop setting. If you look carefully at areas just above and below consolidation areas you will notice one of two things, weakening volume and stable price or strengthening volume with a strong moving price. The former tends to be a "stop test/take" where those who made poor entries are getting out. The latter will be a price continuation, a stop running/taking along with new selling/buying that will more often than not take the price further away from the consolidation.

What does this mean in terms of stop setting? Well, for me, I like to see what happens at these points before I make my decision. I am working on the belief that the more stops above or below the consolidation the better the price follow-through will be when the consolidation range is broken. This also means that I treat ATRs as guides to where the stops are going to be.

Thanks much! Admittedly I am hoping/looking for a more mechanical stop point, but I agree with what you're saying. The intraday action for RES didn't offer much of a consolidation; it just dropped and rebounded soon after.

murray t turtle · Jan 11, 2006

Quote from Chadwick:/murray T Turtle

I'm long CHK as well and got in again (I was long before the October drawdown) ~$28.

I still like RES and will likely consider reentry, but it's intensely frustrating to be stopped out like that only to see it rebound right after; live and learn.

=============

RES is a top % gainer, trade mostly end of day/stops,entry/exit;
but didnt realize until i just pulled up a 1 year chart RES has,
wow ,10% daily swings, hardly ever knowingly risk 10% , & knowingly is key word.

Of course i could but wouldnt trade trade that one end of day as big as even CHK;
10% exceeds even William O Neil suggested 7% max stop loss.
[In other words if traded RES trade it smaller cause of 10% swings daily]

Hope this helps.