June 10, 2011
Time vs. Price Stop Loss…which is better?
– Time & Price Stop Loss
o Price Stop = certain price where the trade becomes invalid, this will exit your position at a specific price level in the market.
o Time Stop (5-second rule)= certain amount of time that we will accept before it moves. If the trade triggers (speed, size, moment, pattern) we assume there is enough there to FINISH the move. If there isn’t we need to be watching for it.
o We are always watching SPEED in the market. Speed of the pattern, speed of the trigger, the speed of the move finishing!
§ Scalper: less than 10-30 seconds in the trade as a short-term scalper.
· If price doesn’t move, I can either move my stop to entry and let it run, or flatten my position to ensure I don’t lose any ticks from slippage.
· Don’t forget that reading tape is a vital skill to knowing when the trade becomes invalid.
· You may not need 30 seconds to see the tape tell you to get out.
§ Day Trader: less than 60 seconds in the trade before I start to worry
· If price does not move I then move my stop to entry or flatten and take the profit that I have.
§ Swing Trader: there is no firm rule for swing traders b/c you have to qualify the pattern, use fundamental news to trigger the entry, and then you need MORE news, or lack of reaction to the news before you can use your time stop.
· “I will enter long on Monday, and if by Tuesday’s jobs report we don’t have a bullish sentiment, I will get flat.”
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– Which type of trader should you be?
– Does the OPEN act like a Price magnet (HOD/LOD, PHOD/PLOD, BMT)
