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Posts Tagged ‘stop losses’

 Sloppy and choppy trading for the vast majority of traders unaccustomed to sequence trading.

 Plenty of setups today in both directions if you know what you are looking for.

Grabbing the majority of the move and leaving the last tic or two for the greedy usually works best for me.

That’s the essence of risk and reward; where do the odds of a small or large reversal begin to dictate your choice in direction?

Trend trading is my preferred method of playing; but in range days (or reversal days!) it seems wiser to play the range trading game until it doesn’t work anymore.

Having multiple contracts on increases our risk, but allows us to scale out our first points and then trail for the larger move. Scaling into a position is also viable provided we aren’t deluding our self about the true stop and breakout areas. These are gray areas that each trader has to address in our own business plan.

If I sense a big move is coming, I will assume a little more risk; not by adding more contracts but by scaling in early and then a bit late if it takes a little more time to develop the play.

I also am willing to assume more risk when the count is in my favor. Bases loaded, no outs, and a 3-0 count I assume the pitcher is coming with a fast ball right down the middle. When I get my favorite pattern setup, at the right time, and with the right volume signal, I am all over it.

Many ways to play the risk reward game; as long as I am willing to pay the price when I am wrong.

Staying in the game long enough to get another at bat is what it’s all about.

 

slice and dice

slice and dice

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Funadmental traders look for reasons why; technical traders look for where and when.

Today’s narrow range finally broke in the afternoon, and the market ratcheted backward testing lower support. Emotional traders who do not understand the potential dynamics of expiration week were whipsawed.

Switching gears from range trading to a breakout mentality requires flexiility in our thinking. Rigidly adhereing to a posture that stops working is a recipe for disaster.

Understanding the secret code allows us to anticipate where suspected turning points should be located. Whether they acually turn there or not of course, is anyone’s guess. The odds are on our side however, when we know where the invisible fence is.

The 05 gap never filled today, and acted as resistance during regular hours. Profit taking was the order of the day, as nothing goes straight up or down in a straight line.

Besides fibonacci, there are a number of other mathematical relationships that need to be reconciled. Paying attention to key numbers in different time frames allows us to see patterns as they emerge.

Locomtion has a rhythm, and its up to us to find it. It is not as simple as understanding the laws of physics; if we are going to win this game we must also comprehend the concept of stops being hit, then the market going without us and making us chase it.

Having the right tools is imperative in any business, especially ours. Besides the right analysis, emotional control, and capital, we need the right computer and monitor set up. Take a look here for some great ideas.

 

mathematics motion and commotion

mathematics motion and commotion

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in the streets…

AJ Monte has put the importance of stop losses into this great article.

Take a look at today’s chart and imagine the pain being experienced by the longs who added to losing positions the past few days in an attempt to “average in”.

Remember Nucleus Accumbens?

 

Head and Shoulders Breakdown

Head and Shoulders Breakdown

 

The longs got hammered today after a weak attempt to convince the shorts they weren’t in control anymore. They showed the same respect for that idea as the Tijuana Tornado showed Migel Cotto Saturday.

The megaphone is shouting; is anyone listening?

In this post we suggested a head and shoulders top had formed the prior day. “Learning to see incomplete patterns before they are fully formed” is one of our key beliefs. The longer it takes us to recognize and act on a valid pattern, the less profits will be available to us.

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Squeezes are a fact of life.

The only question is, will you fight them or join the winning team?

How do we know when high is “too high” or low is “too low”?

Whatever our pet indicators are saying, we need to protect ourselves from ourselves.

This theme is repeated often here because it is the all-important rule that saves us from our irrational behavior. I read this book to understand why someone would pay $240 for a $20 bill; something that I am hoping to avoid doing myself.

No system is perfect. Stops aren’t either. Sometimes we get stopped out and then the trade resumes in our favor. Sometimes the stops save us from minor damage. Such are the facts of life, like skinned knees and failed relationships.

You do wear a seat belt, don’t you? I also presume you have homeowner’s insurance.

Although we hope to never have to need these safety nets, we use these tools to protect ourselves from catastrophic events from which recovery will be difficult.

Today’s early morning continuation high was a classic case of gap and trap both sides.

Many chat room leaders forget that “sideways” is a direction that catches many novice traders who over-react to news events likes today’s beige book report. Gullibly, they blindly follow the emotions of the room leader, and are usually a step behind the market.

Sound familiar?

Here is another expert worth studying; integrate their ideas into your own workable system.

new high and consolidate

new high and consolidate

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Stops are to be used for one purpose.

To stop your losses.

Get over your ego, so you can live to fight another day.

That’s all that needs to be said.

Thanks to Dennis Gartman for these great rules.

This was quite a day.

Smug traders with no respect for the market suffered their rightful punishment.

Anyone who tells you this market is easy is either lucky, a liar, or exceptionally talented.

I do not consider myself any of the above.

Here is a conversation I had with a fellow trader (FT):

FT: Yikes! What do I do now?

E: What’s the problem?

FT: I am underwater, a lot.

E: Oh. Once the horse is out of the barn, tough to close the door and catch him.

FT: Great. Just what I need, a lesson.

E: This is a lesson I suggested for you the other day. Did you read it?

FT: No, I have been busy.

E: Did you take the early morning long?

FT: No, I was chicken.

E: Well, did you take the resistance trade I called at the gap fill?

FT: No, I thought it was going long then.

E: Do you remember I called support near the day low?

F: Yes.

E: Remember I said be careful shorting too low?

F: Yes. I took the resistance where you said it should be.

E: And?

FT: It didn’t work.

E: Right. We never know who will win the tug of war. That’s what our stops are for when we guess wrong. Support held, then the retracement turned into a reversal. After all the profits we made, a stop out is the least of our concerns.

FT: AAAARRRGGGGHHHH! I can’t stand it.

E: Three thoughts, FT:

  • Have a maximum stop that you will honor, no questions asked. No one trade shold ever make you or break you. Just get out, even if you screwed up. It should be a money stop, a maximum pain point. It will probably be just before the market turns around in your direction as luck will have it. So be it.
  • Learn from it, live to fight another day. Study the charts and find out where your judgement was wrong. Most times it is improperly evaluating risk vs reward, the fundamentals like first of month bias, or underestimating the PPT.
  • Promise yourself (again) to always honor your stops. 

FT: Thanks E. You’re always right.

E: Nope, Just right about stops though.

 

 

 

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The noise you heard today was the crashing of the bulls hopes and dreams.

Umbrella’s were up all day long, and everyone who kept buying the low for a bounce got beaten up pretty badly.

Body bags were issued for all the traders who get it wrong and average in going the wrong way.

Intuition is a trader’s best friend, (after the stop loss, of course) and seasoned traders were not interested in the long side today if they understand how markets work.

Differentiating between a normal rally and pullback scenario is quite different from yesterday’s reversal.

Several key charts were available, as well as the code sells that occurred premarket and during the regular trading hours.

The Wolfe wave on the daily that began May 19 completed it’s destination right on schedule. There are so many good ideas out there, just find these tools and use them.

Every month or so you get a fierce trend day that belies belief. If you cannot recognize this type of day, then you are doomed as a trader if you keep fighting it. You will give up a week’s worth of gains or more.

Give it your best shot, then if your normal plan isn’t working, stop trading. Live to fight another day.

If I were a salmon, I would fight the stream. Since I am just a dumb trend trader, I prefer trend trades until they stop working.

Forget the analysts, forget the gurus.

Learn how to trade what the chart is screaming at you.

Click to enlarge.

A Picasso

 

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Limbering up with some exercise is wonderful for traders, especially if you sit in a chair all day.

Getting up, stretching, getting some fresh air into our lungs, and mentally recharging ourselves is healthy for us.

Having our stops in the market stretched, however, is annoying at a mimimum, and downright frustrating no matter how many times we rationalize the experience.

Each entry into the market is a “seed” that is planted. Some will bear fruit, some will not. Stops keep  a bad apple from ruining the rest of the apples, (and their seeds) in the barrel.

The weekly trend stalled today during the afternoon session. Patient fibonacci traders got rewarded, while those who jumped in at the front end of the zone suffered through a drawdown, or got stopped out.

Missed trades are better than lost money in my opinion, so I am usually conservative in my approach. I prefer to stick with an intraday trend until we get to a compelling reversal area. Today’s top came right at such a zone, and the risk/reward changed dramatically at the 123 higher top.

Stop placement is an art, and I can honestly say there is no one method that works best for everyone. We need a little breathing room, but not too much. Better to lose a little, go to the sidelines and think clearly.

Some traders use a one point stop, some use 1.5; some use 2 or 3 points. A few use 5 to 10 points. The most I have heard a trader admit to using is 30 points, and his target is 10 point profit.

Works for him, not for me.

My reverse button works just fine when my dynamic pivot gets hit. I figure it’s better to be making money than to argue with the market.

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