T2W Trading Community

Q - How can we trade profitably with stop-gunning games going on all the time?

A - Stop-running or stop-gunning (both terms are used) occurs when a price is pushed through support or resistance in order to trigger the stops that are hiding there. After the stop supply is exhausted, the market bounces back in the other direction, usually winding up where it was before the exercise began.

You only have two choices if you're positioned before a stop-gunning exercise. First, keep the stop-loss outside commonly targeted price levels. This is tough to do because it adds a lot of risk to the trade. Second, keep the stop loss in very close and take another position after the stop-gunning is over.

Look to step into stop-gunning games from the sidelines rather than being a sitting duck with a position bought or sold at a dangerous level. You can often get dramatic fills with good timing during these games.

Q - Why do I always place my stop loss at an exact high or low?

A - You're describing a condition known as trader's disease. It's caused by the market tendency to gravitate toward the price that causes the most pain. Options traders are especially vulnerable to this affliction. It's not really sinister, it's just the nature of the market.

Start by realizing that volatile stocks can't be traded with tight and scientific stops, because all their support-resistance levels are channeled. This pushes a stock back and forth through common stop levels but keeps the ongoing trend intact. If you get up close to a price chart, you'll notice there's large bar-to-bar overlap most of the time. This makes it hard to get your move without getting shaken out.

Q - How can I keep my stop loss from getting hit all the time on Nasdaq tech stocks?

A - Keep your size down when trading volatile stocks. Before you trade, ask yourself how far that stock can move in its natural wiggle. This quick analysis takes a long time to master and is complicated by the tendency of market volatility to change from day to day. You can also avoid getting your stops hit by picking lower-beta stocks to trade. This means avoiding most four-letter stocks.

Q - When should I use a stop-limit order?

A - I never use a stop limit on anything. It's too easy for the stock to go right through your price, not get filled, and trigger a deeper loss. When you want out, you want out. When you need to get out, you need to get out.

A regular stop-loss order becomes a market order when price trades through it. This gives you more control than a stop-limit order, as long as you choose your stock wisely. Keep in mind the more volatile the stock, the wider the potential loss will be on this type of order. When possible, pick lower-volatility stocks that will hit your stop and trigger at that price, without slippage.