FOR ALL....................THE DREADED STOP....................!
As a daytrader, you have to do a number of things before entering a buy;
1) What is the most I am willing to lose on this purchase
2) What is my " expected profit" for this purchase
3) Is the momentum in my favor
4) Is their sufficient liquidity to get rid of the shares when I sell
There are other points to ponder but basically that will get us into this discussion!
NUMBER 1 has to be the clearest thing in your mind before you enter a trade....without a doubt!! Not because you should go into a trade with the expectations of losing money, but anyone I talk to can tell me how much they want to make on a trade...few can tell me at that point how much they would like to lose!
A stop varies in percentage back from the current price by the value and volatility of the stock.
Example
A stock that is $2.40 like MCF that varies 60c during the day(.30c up/.30c down) should allow for the possibility of $2.10 and then a buffer subtracted of 5%, so the stop should be placed at $2.00
A trailing stop in such a wide move of price should remain below the $2.40 price until the stock is stable at $2.80, so on and so forth. Unless of course $2.80 is in the range of a "respectable profit" in which case you might want to remove the stop and sell, or tighten the stop by 50% to start to preserve your investment. So if you are not willing to lose at least .40+c on this stock...you shouldn't buy it PERIOD!!<ggg>
The very first thing a .40c loss does to the brain, is it begins to rationalize, as to how many shares to buy. If you think you can make $1.00 on a stock you'll "tend" to throw the wallet at it. But if you know you can also lose .40 +, the wallet doesn't fly open as quick!!,gg> Right away, you are approaching your trades more maturily, methodically and logically.
I read on the thread later on in the day that some got kicked out of MCF. So did mommentum stop right after you got kicked out? why didn't you get back in? The fact that you got kicked out of stock doesn't mean you can't rebuy. Did you notice what Keith did as GLE went up, he bought more at predetermined spots all the way up. (I bought more at $9.50)
The point is, if Keith got kicked out at $8.80, that would have not deterred him from rebuying at $9.00 MOMO is your friend!!
Any daytrader that has been trading for more than 2 years always uses stops. The reason I say more than 2 years is because after two years of daytrading...if you don't use stops.....you won't be daytrading anymore...you'll be broke!
I expect to get flak, corrections, and comments!! This is not a subject that can be ignored!!! Nor am I the reigning authority!
the Chief |
