Hi Leland,
Our stop-setting strategy is multi-faceted... all related to our money-management / trade-management strategy, of course. Our philosophy is that a good entry is an entry that will allow us to comfortably set a pretty tight stop which can be quickly managed to break-even. That takes the risk out of the trade, even if we are stopped out. We then trail the stop using techical criteria (support-resistance levels such previous swing hi's and swing lo's, price congestion bands, price round #'s like $20, $70, etc) to set the trailing stops. Often we will take profits on half the position when the gain equals the initial risk (or a little more), then trail a stop on the rest to maximize gains. Swing trades usually get more room to work than intraday scalp trades, and more volatile issues need wider stops, of course. Dave Landry just posted an interesting article about this on tradingmarkets - "The Myth of Tight Stops".
There are several references I could recommend... Deron's books for one ("The Long-Term Day Trader", a best-seller on Amazon.com), Tony's Oz's books, Landry's new book on swing trading, and Jeff Cooper's books - all describe similar stop-setting methods. Or, you can just watch us trade live in the room - at $5, it's cheaper;).
Steve |
