Talib,
Sell stops are a 2 edged sword. We use it to protect from downside, but if you place them too close, they get knocked out easily. So if you have to move them way out... what good are they?? Sell Stops are not perfect, just crash protection. OR, place them tight, and live with the losses that they bring and keep moving.
Sell Stops are food to the Market Makers. They know your there, and if the markets right, they'll grab your shares to flip them to a higher bider.
You'll find that stops are only one tool in money management. Other forms are:
-Buying at the best possible price
(i.e. being patient)
-knowing your PERSONAL time frame
(so you don't get shook out too early)
-knowing what your drawdown tolerance is.
-knowing what your win : loss ratio is
-knowing what your winning profits vs. losing trades are.
(keep records)
MOST IMPORTANTLY
-knowing what is required to tell you that you are wrong.
I always go into a trade knowing what its going to take to take a loss. Because I am a technical trader, this "downside evaluation" is always going on... all the time.
After I got stopped out a zillion times, I finally found there is no single method to use them in all cases. The stop method I use For the BreakWatch is for this particular method of trading only.
I have found that a truely failed BREAKOUT trade occurs when the stock closes under the day priors low. This simple stop method has no other application. In fact, its nothing more than the best comprimise (aka win : loss ratio).
Also, getting stopped and having the stock go higher is what your upset at, but had it fallen farther you'd been far happier. IMO, you need to spend more time with charts to get a feel where to place stops.. If you are unsure where to place it, then buy in such small amounts that a fall in price would actually be a buying opportunity.
Trading stocks profitably is the single hardest thing that I have ever undertaken (this includes running multi-million dollar businesses). Most of "us" come in thinking that "damn... the Dow's up +130 and AMZN's up $22, these other people are losers, I AM SMARTER THAN THEY ARE".
How wrong I was.
Joe |
