Tight Stops Nightmare!

Cathy had some great comments on the rally being long in the tooth, as well as the hazards of low liquidity stocks.

I personally like the big etfs, or at least stocks over 1b

Anytime you are dealing with a stock under 500m, anything can happen, its very hard to control capital.

Also, stops should be set at a point where your thesis for making the trade is reasonabley proven wrong.

For instance, if you short because the trade broke support, then your stop should be set just above support (now resistance).

There should be greater distance to your probable taret, (the next support) than back to your old suppport (better risk/reward)

In this market, if you just place stops arbitrarily and tight, you will prevent against getting blown up, but you will get chopped to pieces, as it is a very choppy market.

This means knowing a lot more about support/resistance, and creating a setup and exit inteligently before you even place the trade
 
Interesting thread. Losing trades are so much more interesting than winners.

Lots of people have given suggestions on what Gordon Gekko could have done differently, but keep in mind that markets are hard to predict. Even if we do everything right, there are still going to be losses. It's the long run averages that count, not individual trades.

If we have a tight stop it's going to feel like we are getting stopped out all the time and then the market comes roaring back. If we change to a loose or no stop, then the market will go south and just keep heading south making us wish we had stuck with our tight stop.

While this single trade is painful, it isn't useful to dissect it to much by itself -- Long run averages will help us decide if tight stops or loose stops are better or if big cap stocks are better to trade than small caps. We want to tilt the odds in our favor, but there are still going to be doosies we won't be able to foresee.
 
Quote from marketsurfer:

the good thing is that is a nice bottoming candle today. we should go up from here, technically speaking. i do not set hard stops for the very reason you speak of. they can be hit too easily for no forseeable reason.

best,

surf:)
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Perhaps..

actually, I see a divergence on the RSI and ROC on the BBA daily charts - and given the current broad market weakness after breaking through important uptrend lines, the path of least resistance is a retest of Nov support.

Granted, anything can happen and the key is to react when it gets there rather than trying to predict.
 
I'll make it easy for you.

Stocks are moved to shake out those on the right side of the trade.

Learn to live with it.
 
Quote from Aaron:

Interesting thread. Losing trades are so much more interesting than winners.

Lots of people have given suggestions on what Gordon Gekko could have done differently, but keep in mind that markets are hard to predict. Even if we do everything right, there are still going to be losses. It's the long run averages that count, not individual trades.

If we have a tight stop it's going to feel like we are getting stopped out all the time and then the market comes roaring back. If we change to a loose or no stop, then the market will go south and just keep heading south making us wish we had stuck with our tight stop.

While this single trade is painful, it isn't useful to dissect it to much by itself -- Long run averages will help us decide if tight stops or loose stops are better or if big cap stocks are better to trade than small caps. We want to tilt the odds in our favor, but there are still going to be doosies we won't be able to foresee.
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Good post...


YOU MUST LEARN TO LOSE...especially
if you're going to day trade. It's just part of the business.
 
Ask em, buy the bid or buy the ask? They will say, "Oh no, you mustn't buy the bid, you might miss a great trade."

So then tell them you are using a 1 tick stop and they will say, "That's crazy, you will get stopped out before the move has a chance to develope."

WELL WHICH IS IT??????

You can be one tick away trying to buy the bid and not get filled, and if that makes you miss a great trade, then a 1 tick stop would be perfect, because that would do exactly the opposite...keep you out of a big bad trade.
 
Quote from stock777:

I'll make it easy for you.

Stocks are moved to shake out those on the right side of the trade.

Learn to live with it.
More...


Let me add a little bit more

Stocks move to shake out those on the wrong side of the trade EVEN WORSE. You don't know which side you are on so you have to do something to keep losses minimal and wins slightly larger.

Robert
 
Quote from rtharp:




Let me add a little bit more

Stocks move to shake out those on the wrong side of the trade EVEN WORSE. You don't know which side you are on so you have to do something to keep losses minimal and wins slightly larger.

Robert
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LOL. Not quite.

The important thing is that THEY (yep, THEY) know which side is the right side.

If you are on the WRONG side, you can't really be 'shaken' at all. You can be made to sell or cover, but it's not a shake. Its a favor.

The point is, that price usually moves around just enough to get all the 'risk managers' to do the wrong thing. That's what's supposed to happen. You want easy, this ain't it.
 
When looking at BBA I don't think you should have taken the trade no matter were you put your stop. It is traded too thin (under 1M) and it closed up three days in a row. Also, when looking at the six month chart, I would expect it to retrace back to the 3.5 level.
 
Gordon.

I am not sure whether you still follow this thread after your painful experience. Since I am coming from the system testing site you might want to hear some of my findings, after testing thousands of different strategies on many portfolio containing hundreds of stocks from different groups.
The best systems (on stocks) that I have seen are the once that use time stop and no money stop (against everything they and even I was always saying). The market will over react in one direction and you will get stopped out. Then people start to think and direction will change, at least for a small portion. Use the stop just in conjunction with your money management. So even if you got stopped out you should have just given away a small portion of your over all capital. But then again I know there are people who even break this rule and make good money.
Not that I am endorsing the sayings of the so called "celebrities” of trading only because they did write a book, but I just read interview of L. Williams in the Active Trader magazine and he mentioned that he is using really wide stops (I think for trading the S&P).

Volker
 
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