Shawn, thanks for starting this thread! I'm expecting it to be useful to help develop better trading habits. One subject that I seem to get failing grades in too often is stop losses.
I often see others claim to stop out with 1/16, 1/8 or other fractional losses on daytrades, but too often find that I've never had such an opportunity. If one enters a trade by taking the offer after a downward surge and pause, and trading continues sideways momentarily than suddenly rushes downward again, I often find that by the time I can stop out, I've suffered much larger than fractional points. (Clearly, I didn't pick the true bottom before a bounce and am not observing the right signs that indicate the trade is about to go against me.) In addition, if the 2nd downward surge pauses, that might otherwise be another potential entry point for rebound, so I'll sometimes see if recovery is imminent and hold rather than take the pause as an exit opportunity (which would lock in even a bigger loss).
The consequence of all this is that I'll often find myself facing a large loss, not a small stop loss. Worse yet, I often find that I'll stop out on the very downward run that does represent the intermediate bottom and then I'll miss the true bounce. So, I have three questions:
1. What do you recommend when someone finds themselves caught in a downdraft that already represents larger losses than intended?
2. What exactly differentiates one pause from another during a selloff that provides the clue that the selling is ready for a bounce?
3. How does one keep tiny fractional stops on trades without trying for the absolute bottom tick of the action, buying only at bid at the very bottom rather than at ask somewhere near the waning of the selling? |
