Question about stop lines, entry lines etc

[mattonline]

OK i have a question about the stop line system, as of yet i've never trader so just curious about this idea i have, sure you've probely thought of it yourself.
But look at the chart for google i've attached


Now suppose i entered the market at the 503.44 line and also put a stop line at the same point, which would automatically sell, would this garentee me no loss?
As my exit point would be 504.55

Thanks in advance.

 

[dbphoenix]

Why would you (a) enter at 503.44 and (b) enter a stop at the same price?

 

[mattonline]

That was just giving an example, but putting the stop there to make sure there are no losses? would this work?

 

[dbphoenix]

That was just giving an example, but putting the stop there to make sure there are no losses? would this work?

Short answer, no. While developing the discipline to at least break even on bad trades is a worthwhile goal, you will be expending a great deal of time and energy to do little more than stay in the same place unless you learn where to enter.

Unless you're planning on scalping the 500-505 range for ticks, you'd do well to wait until the stock makes a serious attempt to break out of either side.

 

[arabianights]

Bear in mind if you're doing this through spread betting (or any system where you're acting as a price taker) then your stop will immediately be hit.

Say bid is 502 and offer is 503... you buy at 503 with a stop at 503. But 503 (or perhaps 502) has just traded. So you get out at 502 for an immediate tick loss!

What I'm trying to say, and I think it's very important...

There is no such thing as a risk free trade

 

[mattonline]

ah right i get it now, say i bought at the BID which is at 502, would the new BID be lower than the 502? therefore would this mean it would go down to something like 501 (talking in whole numbers)

I think i'm a little confused what the BID & ASK mean, can i BID for the trades?, and the ask means what people are asking for?

 

[arabianights]

A bid is a price at which someone is willing to buy at. An offer is the price at which they are willing to go short. So if you bid 52 and they offer 52 you will go long (from a net point of view). If you bid 51 and they offer 52 then there is no trade. You can think of the market as bids and offers coming together to make trades. Offer is the same as ask btw.

 

[mattonline]

oo right, so say i want to bid 502.70 for a stock, but the ask was 5.80 i would have to wait till it either drops a little or raise my bid.

Ah right that cleared up a few things

 

[dbphoenix]

OTOH, if you wait to buy until the price comes down to what you want to pay for it, the price may never come back to what you're offering. Or the price may in fact come back to you, but since you will then be buying a falling price, the price may just keep on falling, and you'll learn what "deer in the headlights" means.

Hope you work all of this out before you put any real money on the table.

 

[mattonline]

yeh i will learn all this before i do put money in for real

 

[dbphoenix]

yeh i will learn all this before i do put money in for real

You say elsewhere that you want to become a stockbroker. If you want to be a good one (and why would you want to be a bad one), you're going to have to learn how the market works. Whether or not you can learn this in school is debatable. But do be careful to avoid taking what you read at face value.

For example, you will likely want to become conversant with both fundamental analysis and technical analysis. Many people believe that these two forms are incompatible. They aren't, but that's neither here nor there. Take the time to learn what each is (which can be very different from what people say they are) and evaluate them yourself. You will then learn, for example, that taking a trade such as that you've proposed above requires familiarity with momentum trading. If you don't take the time to learn what momentum trading is all about and you try a trade such as the above and it fails, you cannot in all fairness claim that charts are bunk and that technical trading "doesn't work". Not that you would. But you might. Many have.

So carry around a large grain of salt and be determined to evaluate everything you read and hear through your own experience. The amount of baloney you'll encounter in the process could feed a third-world country.

 

[tomorton]

In theory, setting a stop at your entry point will get you out flat, for no loss and no gain. Its a good technique, when your position moves well into profit, to set a stop at the entry so that no matter what, you incur no risk of loss.

How soon do you set a stop? immediately you open a position. This will at first necessarily be at a loss if its hit quickly but it will be a managable loss (see money management). Don't wait to set a stop, set a stop and then wait: after all, what if you go short on Google and then you get hit by a truck? The next day they get a take-over bid and when you finally get out of that coma a week later you could have lost the house.

Also, SB platforms tend to not allow stops very close to the current bid / offer prices. e.g. I am looking at Finspreads price on the FTSE100 March (but same principle applies everywhere). This is available at 5797-5805. But at this moment they will not offer a stop in the range of 5793-5809 inclusive. If I short at 5797, the market would have to fall 8pts before I break even with a manual close, buying at 5797. But it would have to fall by 13pts before they will offer me a buy stop-loss order at 5797 so an immediate stop at the entry point is impracticable. And setting the stop as soon as a fall of 13pts has occurred is likely to lead to it being hit just due to the natural volatility of the index: anything worth trading can move that much in percentage terms in a few minutes.

Like Oscar says, don't trade alone, let us know what you're doing.

 

[theroguetrader]

Stops

In theory, setting a stop at your entry point will get you out flat, for no loss and no gain. Its a good technique, when your position moves well into profit, to set a stop at the entry so that no matter what, you incur no risk of loss.

How soon do you set a stop? immediately you open a position. This will at first necessarily be at a loss if its hit quickly but it will be a managable loss (see money management). Don't wait to set a stop, set a stop and then wait: after all, what if you go short on Google and then you get hit by a truck? The next day they get a take-over bid and when you finally get out of that coma a week later you could have lost the house.

Also, SB platforms tend to not allow stops very close to the current bid / offer prices. e.g. I am looking at Finspreads price on the FTSE100 March (but same principle applies everywhere). This is available at 5797-5805. But at this moment they will not offer a stop in the range of 5793-5809 inclusive. If I short at 5797, the market would have to fall 8pts before I break even with a manual close, buying at 5797. But it would have to fall by 13pts before they will offer me a buy stop-loss order at 5797 so an immediate stop at the entry point is impracticable. And setting the stop as soon as a fall of 13pts has occurred is likely to lead to it being hit just due to the natural volatility of the index: anything worth trading can move that much in percentage terms in a few minutes.

Like Oscar says, don't trade alone, let us know what you're doing.

Placing a stop too close to the market price is one of THE biggest mistakes people make.. !! - Youll just get whipsawed .. !!
Use the CHART to tell you where to place a stop - not some " arbitrary " number that doesnt have any relationship to the position your trading ...!!
If a position moves " way into profit " - TRAIL THE STOP and cover half your position ... !!

Try using a " mental stop " AS WELL as the actual one (behind that) - youll always be covered then .. !! (if the market bounces through the " mental " stop - youll still have room before the actual stop gets hit (and save some money)..!!

 

[tomorton]

Re post by roguetrader - Listen to what he says mattonline

 

[blackcab]

I was going along for quite a while before I realised that, if I'm honest, deep down, I don't understand the dynamics of an auction market intimately enough. Ladders of limit orders that sit passively until they're eaten up by market orders, price just being the last recorded trade. All fine. But the dynamic behaviour that emerges from large numbers of trades/traders doing this at the same time, with different motives, the more I contemplate it, the harder it is to visualise and get a handle on.

Among the billion trading books & articles, I haven't found one that explores these dynamics systematically. Has anyone got a reference? Auction Market Dynamics For Dummies would be just fine!

 

[rathcoole_exile]

I was going along for quite a while before I realised that, if I'm honest, deep down, I don't understand the dynamics of an auction market intimately enough. Ladders of limit orders that sit passively until they're eaten up by market orders, price just being the last recorded trade. All fine. But the dynamic behaviour that emerges from large numbers of trades/traders doing this at the same time, with different motives, the more I contemplate it, the harder it is to visualise and get a handle on.

Among the billion trading books & articles, I haven't found one that explores these dynamics systematically. Has anyone got a reference? Auction Market Dynamics For Dummies would be just fine!

just imagine a bi-polar manic-depressive - that's the crowd psychology behind the market

 

[blackcab]

just imagine a bi-polar manic-depressive - that's the crowd psychology behind the market

Schizo as well, to boot