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Strategies & Market Trends : Trading For A Living
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To: Robert Graham who wrote (754)7/6/1998 8:18:00 PM
From: _aj  Read Replies (2) of 1729
 
It is possible for a daytrader to limit MOST losses to 1/8 of a point. This requires discipline and comes at a cost in flexibility.

1. Don't even think about stocks like AMZN, etc. These move too quickly. You just can't be sure of getting out where you want.

2. On Nasdaq stocks, stick to 1000 share lots on 1000 share SOES stocks.

3. Stay away from most stocks trading 20,000,000 shares that day for the same reason as #1.

4. Pay close attention to the LII situation. You need to see decent support at levels 1/16 and 1/8 below your entry point. Don't buy a stock at 50 1/2 when there is one market maker advertising 900 shares at 50 3/8 and 300 shares on ISLD at 50 5/16. At least don't expect to be able to limit your losses to 1/8.

5. You must be "trigger happy" and utterly intolerant of moves against you. Even if there are 20 market makers at 1/16 below your entry point, they can disappear (and other orders can get in front of you) in seconds.

6. Don't enter a trade until the number of market makers at the offer starts to dwindle. If you can get in shortly before an uptick, you give yourself 1/16 extra insurance.

There is a catch, however. These rules will cost you trades. Many times you will not enter a trade because the LII support doesn't meet your standards and the stock will head straight up. This is the price for maintaining super-tight stop losses.

It is up to the trader to decide if maintaining a 1/8 stop loss is worth it in foregone trades (and trades he gets whipsawed out of).
BTW, my biggest daytrading loss was 15/16 and I had to ignore everyone of my rules to do it. I don't recall ever losing more than 3/16 when obeying these rules.
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