The reason for not using tight stops

[stillkicking]

Was watching an interesting video this morning.

A high-end trader was discussing stops and the idea of not using them or if you do to keep them very lose. His theory was, the professional traders know the retail traders (probably most of us) have been taught to always use them so they will put in a small sale at a lower level before a large buy just so our trailing stops all get taken out and toss us out of the market.

His advice was to not use them and keep your eyes on your trades. If you have to use them to keep them very lose.

Food for thought.

 

[tomorton]

Its a good point but stops can't be seen in isolation, they have to be integral with the strategy. So there is a small number of strategies that only work without stops, and a small number that demand very tight stops.

But most traders are using middle of the road strategies which are antique and not highly technical and don't demand huge capital, which isn't a bad thing per se but they then make the mistake of concluding (or being taught) that a small stop means a small loss. This is dim thinking. They need only ask themselves, how much in £ is a 25 pip loss? there is no reason to think its more or less in £ than a 250 pip loss. But I'm betting most of them think its £25.

 

[stillkicking]

When you learn about the dark pools hidden trading practices and high frequency trading getting in front of every transaction and now this business about pro's taking out the less sophisticated retail traders by hitting their stops on the way up, you start to wonder just how fair the stock market really is.

Maybe fair and stock market cannot be used in the same sentence.