kriesau said:
Whilst I would not trade indices without stops (though I sometimes trade sub 100p stocks without stops or just token stops) I don't think that anyone can justifiably make a blanket statement that trading without stops is lunacy ! It depends what instrument you trade, over what timescale you trade it, how much money is involved and how much money you have got !
We all have our own individual strategies and trading ranges and our specific financial situations are all different too. I would advise index traders always to have a stop - even if it's only a catastrophic long stop - but some day traders don't use them and manually control their trades. Personally I would still use a stop, even in those circumstances, but I can understand why some people don't and I do not regard them as lunatics. I think FC sometimes trades without stops (I'm sure he'll correct me if I'm wrong).
Incidentally what are "floor based or prop/upstairs trading setups" and why are they the exception with regard to stops ?
kriesau,
Floor based traders (not that there are that many left now) and upstairs/prop traders (effectively off-floor locals for the most part) by and large, have a far better feel for order-flow than most of us due to floor-presence and/or contacts on/off the floor. They also have the commission structure and discipline to be able to scratch and reverse a lot of trades if there is no support for their position (I'm not suggesting that all on/off floor locals are successfull by the way). "Stops", in the sense we use the term would obviously be a pain in the backside with that style of trading.
As you say, a decision on whether to use physical, resting, stops or mental ones can only be based on our style of trading and an honest appraisal of our ability to be able to execute those "mental" stops under duress. Nevertheless, a stop, whether it be mental or resting in the market/on your PC, is still a stop.
I think FC's setups that you refer to are time based rather than price based (likewise, I stand to be corrected). I don't think it matters what you use to determine the validity/invalidity of your position, i.e. time, price, internals, flow, etc, as long as it isn't "how much more can I afford to lose before I give this up". OK, It does depend on how much money you've got, i.e. you can almost always be correct if you've got extremely deep pockets, but I don't think that's really a viable course of action for most of us.
As for your penny stocks, If nothing else, your stop would be at £0.00 wouldn't it?. So, your loss is limited, unlike indices (as you quite rightly point out).
