Arts of stop placment and profit target

[brownsfan019]

	Quote:	walterw
	King, Stops should be placed in relation to price action (pivots) and not a fixed value... same is true for profits, price action should tell you when the move is over and not a pre fixed target... fixed targets its like spoiled kid that wants something (candy).... markets dont give some times what you want... market has a dynamic you want to simply follow... I here a lot here on TL about 10 12 points targets on YM.... thats some how pretty foolish, because some times you will get a 30 move and you leave money on the table... and some times market made a nice 8 point move and you didnt get it and waited to get mowed with - 10 -12.... price action is the best way you can manage a trade in terms of stop/trail.... if the market wants to give you a lot of profit he will give you, if he doesnt want to give you much profit... want give you... now never forget this : RRR = live or die.... cheers Walter

Walter - allow me to share one piece of advice I received awhile back when trading - there is no way perfect way to trade. What works for you, may not work for others.

Point being - you cannot say that one way of trading is 'foolish'. That's just completely inaccurate.

For example - the argument can be made that if you go for +10 on the YM, why can't you re-enter the trade again if it indeed moves the 30 pts you quote. Just b/c it may have taken 2-3 trades to capture profits vs. one, that trader is just as profitable minus the tiny commission. However, that same trader is constantly taking profits and that can do wonders for your psyche.

Just keep in mind that when you reply to threads, you are providing your opinion. And while you are entitled to it, calling people or ideas foolish is indeed, foolish. Just b/c you don't like it or agree, doesn't mean it can't or won't work. As my high school math teacher used to always say - there's more than one way to skin a cat.

(I have no idea why that quote has stuck with me for so many years. It's rather disgusting, but proves the point.)

[wsam29]

Pivot, I think that part that confuses new traders as it did for me, is "how does one surrender to the market" without feeling like they don't know anything and yet be successful at trading?

You could say it boils down to "you knowing what you are going to do when the market does what it does."

[brownsfan019]

	Quote:	PivotProfiler
	Things are different, however, when the trade moves against you from the start. I believe it is possible to know that you are on the wrong side of the trade PRIOR to your stop being hit. One does not have to wait for his stop to be hit to know he is at least wrong on timing and possibly right on direction. If your stop is 15 ticks away, I find it hard to believe you don't know you are wrong when price is 3 ticks away from your stop.

Pivot - my observation on this would be that your stop is too far to begin with. Stops are there to take you out at the very point that you are wrong. If your stop is 15 ticks and at 12 you know you are wrong, then your stop should have been placed at 12, not 15 in my opinion.

For me, and I've mentioned this before - I am not wrong until my stop is hit. That's it. My stop must be taken out before I know I am wrong on the trade. That's the purpose of protective stop losses. They stop a loss from becoming larger. The reason for this is simple - unfortunately not every trade is immediately in profit. Sometimes the trade is in the red for a few moments and then moves in my direction. As long as the stop is not taken out, this is a great trade in the end. Of course we all want to be in the profit immediately, but that's not realistic.

[wsam29]

I believe each time I rub my belly and tap my head before a trade, it will work out, but if I tap my head and rub my belly, my stop will be taken out.

[Anonymous]

	Quote:	brownsfan019
	Pivot - my observation on this would be that your stop is too far to begin with. Stops are there to take you out at the very point that you are wrong. If your stop is 15 ticks and at 12 you know you are wrong, then your stop should have been placed at 12, not 15 in my opinion.

Here we go again LOL. I really do like hearing your thoughts. Hope the same is true for you.

	Quote:	brownsfan019
	For me, and I've mentioned this before - I am not wrong until my stop is hit. That's it. My stop must be taken out before I know I am wrong on the trade. That's the purpose of protective stop losses. They stop a loss from becoming larger. The reason for this is simple - unfortunately not every trade is immediately in profit. Sometimes the trade is in the red for a few moments and then moves in my direction. As long as the stop is not taken out, this is a great trade in the end. Of course we all want to be in the profit immediately, but that's not realistic.

A protective stop is used for protection. It is placed to get a trader out of a bad trade. During the trade itself, some traders would be inclined to sit and wait , and worse, hope. Hope that price will turn around and prove them right. The stop loss is placed to keep a loss from becoming bigger than it has to be, because the trader couldn't do what needed to be done-admit he is on the wrong side and get out.

If you place your stop at a level where the analysis that caused you to go long (for example) would be no longer valid, then it is true that your stop being hit would mean you are wrong. But if you use a money management stop, it can just mean you are wrong on timing and not wrong on direction (or overall analysis).

As far as too far away, you know the 15 ticks was just an example. As previously stated, the "best" type of stop is a market stop. Many times I find that this stop (based on old highs or lows, pivot levels, Value Area,etc) can be too far away for most people. If that is the case, then the stop used is based on account size and says nothing about market reality.

But if one's stop is just about account size, why does one have to lose all the entire amount of the stop? Wouldn't it be prudent to exit prior to the stop loss and save money? Yes one may be willing to lose 150.00, but that does not mean one has to. Get out after losing 75.00. I hesitate to use numbers for two reasons: during a trade one should not think in terms of money gained or lost, but rather points/ticks/pips. And two , people will question the 150.00 number as if it is real. It is just an example.

BTW, thanks for your help in the previous thread. You helped me get back on track. I was not really a fan of the time stop,luckly, it had not been an issue in real time.

[wsam29]

	Quote:	PivotProfiler
	Here we go again LOL. I really do like hearing your thoughts. Hope the same is true for you.

[Anonymous]

Like I said, a time stop is not about what the market wants, but rather about what I want. However I do understand some of what Mark Fisher is talking about.

Assume there are two types of traders:

1. the quick
2. the dead.

The quick are characterized as those that can both see and seize opportunities in the beginning stages.

The dead need more and more confirmation to recognize opportunities. They rely on word or mouth, news events, and various other ways for confirmation. The dead are thus late to the party. They tend to be buying tops and selling bottoms.

Now let's suppose you are on of the quick and you buy the market at 100. 30 minutes later, price is still around 100, say 99-101. Now the dead are starting to come to the party on the long side. Mark is saying, if everybody can get in at the same price you did then the trade cannot be all that good. Here we see that. The dead are now able to enter at pretty much at the same price you did. This is a clue that you are not in a good trade. By definition, the dead are late and wrong more than right. So if they are going long..............

We are not so much talking about buying bottoms and selling tops here. What we are really talking about is the idea that once everyone else recognizes the value of the trade, the largest part of the opportunity (and some would say, easiest) is usually over.

Now, If you could focus on entries that are closer to the point where the dominant order flow changes, then the market should spend less time in a 'no-go" state. If you can go long as the loser (the dead) has to sell against himself (close his short) than you can use the oder flow in your favor. From VSA, we can see where the Smart Money entices the herd into a losing position so the herd has to close out at a loss, but in so doing create even more movement against themselves.

In other words, if you can enter at points where the market tends to react from, then the positon doesn't have to move against you. Nor do you have to sit and wait for the actually price run to start.

[walterw]

I want to formally apologize for using the word "foolish", it wasnt on the spirit of my post to be unrespectfull to anyone.... lol

[Anonymous]

Here is an example of what I was talking about.

The entry is on the open of the bar with the green arrow.

As this thread is not about VSA, I will not get into the set up much. I will say that the entry comes after a confirmed 'test' of supply. Professionals checked for sellers underneath the market and found none.

The lower purple line is Value Area Low. The pink line would be the initial stop. Here we have the best of both worlds:

1. Close stop
2. Stop based on reality (market).

With a stop that close, you might not even have a chance to exit prior to it being hit. On the opposite side, note that only one 5 min bar with equal close to the close of entry bar. After that bar, we are in a surging market and on the correct side. We are in tune with the market. Pretty instant gratification. We are patient while looking for the set-up, but once in we want immediate gratification.

Now, suppose are stop is lower. From a market structure point of view, a close below the Value Area Low Pivot is bearish. Therefore, even before our stop is hit, conditions for the long trade are nullified. Why then would we need to wait for the stop to be hit?

[Soultrader]

Here is a good excerpt from Markets In Profile following up on Pivotprofilers comment regarding the quick and the dead.

"Imagine you're at the track.... you make your wager before the race starts and settle in to watch the horse run. What if we changed the rules and let you place your bet after the race is already under way?

A totally different side of human psychology would be revealed. Once again, all information must be placed within its proper context - how will your decision be affected if the horse you had planned to bet on is currently in the lead? What is the horse is losing momentum around the second turn? How will your betting habits be affected by this real-time information?

We should expect, considering a general understanding of human nature, that the larger the horse's lead, the more individuals will place bets on that horse to win, and that bets on the horse in the back of the pack will evaporate. When you extrapolate this behavior in the context of financial markets, is it really so "irrational"? When you think about it, betting on a clear winner is a pretty rational decision, in the immediacy of the moment. This phenomenon is commonly known as "momentum investing," which is often the primary force behind short-term market movements. And just as the payoff odds decrease in betting a pool more money is placed upon a particular entry, the payoff odds decrease for late-momentum investors as the market explores extremes."

- From Markets In Profile -