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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: compradun who wrote (3900)	9/13/1999 6:22:00 PM
From: Matthew L. Jones	Read Replies (7) \| Respond to of 18137

Does anyone have any thoughts concerning where to put stop losses? As you all know, almost every book out there says to use 2% of your trading account balance as a max stop loss. I find that to be a little wide and a little arbitrary. Should not the stop be related to the position and not to the total dollar amount? For example, I played a gap play (shorting GIC at the open) today. I closed my position 1/8 before the big reversal and left $4000 on the table. I know that I won in that I didn't break my rule and I didn't exceed my stop loss, however when I leave large amounts on the table because of an arbitrary rule that has been handed down from trader to trader it is extremely frustrating. I know from reading your posts that many of you don't hold to this "sacred cow" (Alan, I'm not being religious when I say "sacred" <gg>). Theresa (Intelligent Speculator) has a good system on her site which uses the 40MA hi-lo range to give a good breathing room for a position (and is good for determining position size) as well. The article can be found at: intelligentspeculator.com It is a very thoughtful approach and attempts to solve the problem of arbitrary fixed dollar approaches which don't take into consideration position size, stock price, or volatility. Certainly one would use a much tighter stop on QQQ than on EBAY. Another problem I have found, is when you are playing a gap type play, like this mine this morning the actual "average bar length" at the open would be extremely stretched so that a strict 40MA hi-lo would prematurely stop you out as well. I am interested in hearing some original ideas as the common rules, while working great in paper trading are sometimes too big or sometimes too small (IMO) for the real world. I am also the type of person that want to know the "why" to set up stops a certain way (as opposed to just adapting an arbitrary stop amount or percentage amount. I would like to develop a system that I feel real confidence in. That way when days like today come around, I don't sit here 2nd guessing my rules. Matt