Simple Basics - Don't Hurt the Newbie

L

Lapdance Jockey

Hello All,

This is my first post - been hanging around this forum for about a year.

Just a few questions - and please - don't hurt the new guy :cool:

I'm trying to learn - so naturally my bankroll is small - been trading for about 9 months - I tend to lean towards swing trading.

My questions are:

When you buy something - and you're really only trying to get 10-15 cents out of the thing - why wouldn't you immediatly put in a stop at a 5-7 cent loss to cover your ass, and then as it goes up ladder your stops in 5 cent increments - so if the thing goes on an upward tear, your good, and you lock in your profit - if it tanks - you're out early - and more importantly if you lose only 5-7 cents per trade you only need to hit 1 big winner or a few base hits to be profitable.

Is all this oversimplified?

Also - and i'm sure this has been asked many times so thank you for bearing with me - but are there any books etc that you could direct me to that are full of usefull information? not so much on strategy but more on JARGON - you guys toss around this slang that drives me nuts b/c i don't know what it is :cool:

I'm might be EXTREMELY green - but as most - i really want to get a grasp on this. i'm not looking to take over the world - just to hold my own, at least for now -

Thanks for any suggestions

Jockey
 
Quote from Lapdance Jockey:
When you buy something - and you're really only trying to get 10-15 cents out of the thing - why wouldn't you immediatly put in a stop at a 5-7 cent loss to cover your ass, and then as it goes up ladder your stops in 5 cent increments...

Is all this oversimplified?

Nope. It's called a trailing stop. The key, though, is figuring out what that initial stop and delta should be, to avoid getting shaken out. This varies by situation, stock, time of day/month/year, etc.

are there any books etc that you could direct me to that are... more on JARGON - you guys toss around this slang that drives me nuts b/c i don't know what it is :cool:

Jim Cramer wrote some stuff on this a long time ago. A quick search revealed this article with a bunch of links that might help: http://www.thestreet.com/_tscs/comment/rewrite/718368.html .
 
Everybody has their own trading style.

What works for one trader may be wrong for another.

In the end, you have to determine what amount of risk and reward works best for your style and bankroll.

I tend to trade futures small amounts, even though I could afford 6 or 7 times more. I like the slow steady turtle-like approach. Instead of trying to hit home runs, I aim for lots of singles and a few doubles. I tend to make 5-10 trades a day and have a high winning %.

Big losing trades piss me off and screw up my thinking, so I try to avoid them at all costs.

But that's just me.

good luck.
 
Quote from Lapdance Jockey:


"and more importantly if you lose only 5-7 cents per trade you only need to hit 1 big winner or a few base hits to be profitable."



Ever heard the saying "death by a thousand cuts?" Stops and price targets should be based on price action and not placed arbitrarily using fixed amounts. Furthermore, account size dictates position size which correlates to the logical stop not exceeding the maximum drawdown allowed per your trading plan. If it does, you do not take the trade.

Simple enough? :D

As a side note, hopefully you are not "swing trading" for pennies as descibed in your example. :confused:

st
More...
 
the only thing i would say is that if you immediately put in a target limit order to exit the trade at a few ticks profit, unless your entry is really golden, you'll instantaneously decrease the odds of your target price getting hit before your stoploss. it depends on the market you trade, but in general it will always shy away from your target if your order is native and out there waiting. if you can use a simulated order like a stop limit, i think you might hit it a little more often. just $.02 based on my experience and maybe others have diff experiences. if you've been trading 9 months you've probably already experienced this tendency

it probably also varies a little based on whether you're trading breaks or countertrend, and what the inherent trend characteristics are of your mkt
 
Quote from Lapdance Jockey:

Hello All,


My questions are:

When you buy something - and you're really only trying to get 10-15 cents out of the thing - why wouldn't you immediatly put in a stop at a 5-7 cent loss to cover your ass, and then as it goes up ladder your stops in 5 cent increments - so if the thing goes on an upward tear, your good, and you lock in your profit - if it tanks - you're out early - and more importantly if you lose only 5-7 cents per trade you only need to hit 1 big winner or a few base hits to be profitable.

Is all this oversimplified?


Thanks for any suggestions

Jockey
More...

This is where backtesting is useful, as it allows you to play around with different stop increments and profit-taking approaches and see the effect of varying them.

The problem with tight stops is they ruin your win/loss ratio. You get stopped out of trades that would have gone to profit if they had a little more room. It is easy to underestimate the effect of getting stopped out too frequently.
 
Quote from Avid_Consumer:

the only thing i would say is that if you immediately put in a target limit order to exit the trade at a few ticks profit, unless your entry is really golden, you'll instantaneously decrease the odds of your target price getting hit before your stoploss. it depends on the market you trade, but in general it will always shy away from your target if your order is native and out there waiting. if you can use a simulated order like a stop limit, i think you might hit it a little more often. just $.02 based on my experience and maybe others have diff experiences. if you've been trading 9 months you've probably already experienced this tendency

it probably also varies a little based on whether you're trading breaks or countertrend, and what the inherent trend characteristics are of your mkt
More...


why do you think this happens? I trader in my office has mentioned something like this before. He'll swing trade equities intraday for say 40-60 cents on something like BRCM, and sometimes he'll say his target limit order was "pennied". He used to work at First New York Securities and a hedge fund, so he isn't a newbie, like myself.
 
this "happens" because big money can see where the logical area is for a stop.... and so they "probe' it.....to which in effect many get shaken out..... and the specialist turns to his assistant and says.." thats how its done boy".

IF YOU ARE SWING TRADING...... you must ignore these intra-day moves, which are just noise, because swing trading means holding a stock for a few days or even weeks.

A long term trader lives in the monthly & weekly charts= goldfish
A swing trader lives in the weekly and daily charts= Sea Bass
A day trader lives in the 15, 60 min charts= Baracudas
Scalpers live in 1 to 60 min charts= Sharks


dont be a gold fish trying to play with sharks
 
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