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Strategies & Market Trends : TA Science Projects & Experimental Indicators

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To: Spots who wrote (125)	5/28/1998 10:03:00 PM
From: ftth	Read Replies (1) of 237

Hi Spots, long time no see! One reason for the difficulty w/ money management might be the lack of a specific plan of action to limit losses. Without such a plan, how can it be anything BUT an emotion-based reaction. As simple as it may seem, coming up with a plan for how you set stops and when to move them up, and by how much, takes a lot of tweeking in order to be effective. It takes just as much work as tweeking an indicator. Effective is the key word there, because it's easy to implement a blind percent stop-loss (just as it's easy to implement a blind 50-day MA trading rule). I don't find blind percent stops to be very effective because it's not based on the market action itself. If there's no chart or indicator based reason for the stock to stop dropping once it's down 8% from your buy point, it probably wont. It needs to be (here's that word again)adaptive to the specific stock's characteristics. On the other end of the spectrum, when to close out your position needs a similar plan. I gave up on blind price targets because I found them to be similarly non-optimal (except for swing trades, where $4-$6 profit is the goal (from the outset) over a few days max). I'll quote Laurence Connors another time: I don't believe in mechanical systems. You've lost control. The mechanical system has taken control. It's not your responsibility anymore, it's the system's responsibility now. And when the system stops working because you don't understand it, you don't know why. Also, most mechanical systems end up getting you out at the close, which I don't believe in either. I like trailing stops. I don't set goals for exiting the market; I let the market take me out. It's a matter of taking the trade for the sake of doing the right thing instead of concentrating on making money. Let the market take the trade as far as possible. dh

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