Sword, I tend to agree with your response, part one and two, but have some trouble with part three.
What you are saying in part three can be absolutely correct in some cases, but can be painful in others...it truly depends on the situation.
If the trader is a scalper, sitting on a losing trade past 3/16 or 1/4 of a point can put a damper on the trader's P/L. However, if the trader is looking to make a point and a half, then taking a maximum of a 1/2 point loss is a reasonable risk. It all comes down to desired outcome.
One other comment that I will add is that in addition to looking at the Nasdaq Composite Index and the Dow, you might consider watching the Ticks, TRIN, S&P Futures, and the sector that you are trading in as leading indicators of broader market movement.
Regards,
Michael Turner
Author
DayTrading into the Millennium
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