Chicken or Egg ??

[Chicken Curry]

This is a "which comes first " question as you may have deduced from the title.

When trading live I am interested to learn whether, after identifying a set-up, traders do any of the following :-

1. Make a decision on the stop level before deciding the entry level, or

2. Make a decision on the entry level before the stop level, or

3. Neither, because they do something completely different, or

4. Neither, because they don't use un-macho things like stops.

 

[pboi]

I attempt to gauge the volatility of the market ( mostyl unsuccessfully) and my stops are normally around 20-25 points. Entry level is either taken from the days previous numbers, or the Camarilla.

Works for me....apart from last week when the markets were all over the shop!

 

[dbphoenix]

2. Because if the entry point is correct, then the stop level becomes largely irrelevant.

--Db

 

[TraderPattern]

I wholeheartedly agree with dbphoenix. In my successful professional trading career, I have always adopted point 2 as an inherent philosophy.

 

[Chicken Curry]

I like my stops to be reasonably tight and they would usually be no more than 15 cents which is mostly fine for the type of stocks I trade.

In general I would be doing something like this :-

1. Identify set-up

2. Place stop a few cents below the most suitable candle in the set-up ( usually the last candle or the one immediately prior to it )

3. Check out Level II to see if stop is feasible at this level.

4. Count 10-15 cents up from the stop level to see if entry is feasible or sensible at this level.

5. For long trades, check out Level II to see if there is a MM ( or ax ) standing in my way on the ask side.

If I get a yes, yes, no for questions 3, 4 and 5 respectively then I am in.

Make any sense to anyone ?

 

[Chicken Curry]

Because if the entry point is correct, then the stop level becomes largely irrelevant

Tend to agree Dbp but "if" is a very large word and it is not always easy for lesser and more inexperienced mortals to get it exactly right.

Therefore, I necessarily have to find a way that accomodates a measure of error on the entry side.

 

[TheBramble]

The Entry Level is, or should be, self-evident - or you don't have a setup.

Your protective or Initial Stop is, or should be, self-evident - or you don't stand a chance in the long run.

I admire those who always get it right and don't need or use stops, but unfortunately, once in every 18,567 trades, I pick a loser. And in that instance, I'm happy to have a very tight stop.

 

[Chicken Curry]

"Should be" is a similar qualification to "if".

Unfortunately I am less than perfect and I therefore have to adopt a less than perfect method to cope.......at the moment.

 

[dbphoenix]

Tend to agree Dbp but "if" is a very large word and it is not always easy for lesser and more inexperienced mortals to get it exactly right.

Therefore, I necessarily have to find a way that accomodates a measure of error on the entry side.

I won't go into the testing aspects here because I've done so ad nauseum in other threads (see above) and why repeat it? However, it's not necessary to "get it exactly right"; it's necessary only to have some objective basis on which to make a determination AND be willing to modify one's strategy throughout the process.

I always use a fairly wide catastrophe stop when I enter for the data feed can be interrupted unexpectedly and even the cable can go out (rare, but it does happen). Then, when the trade is filled, I observe. If my conditional stops aren't triggered, then there isn't much to do other than sit back and monitor, or even leave the desk and go do something else. If they are triggered, then it's out and wait for the next setup.

The risk:reward factor which so many traders consider, however, is applied incorrectly since the market couldn't care less how much the trader is willing to risk or where he places his stop. It's going to do what it's going to do. If the trader has no basis on which to judge what the market is likely to do in a given situation, then any risk:reward calculation will be largely fantasy.

--Db

 

[Chicken Curry]

it's not necessary to "get it exactly right";

Not a good choice of words on my part I must admit.

What I meant was I will not usually get the entry level established as well as other more experienced and proficient traders.

 

[dbphoenix]

What I meant was I will not usually get the entry level established as well as other more experienced and proficient traders.

Don't believe everything you read . . .

 

[Chicken Curry]

Don't believe everything you read . . .

:cheesy: