Think if you were long silver futures and has no stop in place? You could have theoretically vaporized a $200k account in the Silver debacle.
However, stops are dangerous also. Esp. since your stop information is usually "sold" from broker to broker so those who run the stops know what their equity curve will look like. No, it is not fair, not proper, not really even morally close to correct, but it is the way it is. The levels of corruption on other matters of even higher magnitude and clarity mean that the issue of your stops being published and sold to the highest bidder will not be one that is addressed soon.
Twiggs does some good stuff, although he is stuck on horizontal resistance, when it is blatantly obvious that sloping channels get way more respect these days. In the old days, when people bought stocks for months or years at a time, a horizontal level was a "squeal point", as in ....if I get back to 35, I will be even money and I will sell. Or conversely, hey I am up 10 points from 50, but if it drops back to 50 I will sell to prevent a loss. Often times there was alot of money placed during a consolidation time near a particular price level, and it was people's memory of where they bought in at that created the importance of the horizontal price level.
Trading is evolution, and although horizontal price levels are still important, my observation shows they are not as important as they used to be.
That said, Twiggs did a great job on this stops table. Basically it shows that tight stops will loss you the most money. his studies are based on some kind of entry and exit system, so of course, depending on the system that enters the trade, that may actually big the main factor in picking your stop level, a very simply concept actually.....at what point will I know that my technical basis for entering the trade was wrong? And then you don't want to be just a scooby snack beyond that line, or HBB will drink your milkshake by running your stop. You want to give it some room.
Visit Twiggs here, and he has an email newsletter too, most of it all free.
http://www.incrediblecharts.com/sitemap.php?mgroup=162
Great stuff on the stop losses. To me that's the difference between making $$ and not making $$.
ReplyDeleteI'm seeing a giant egg underneath the weekly USD chart. Not a lot of touches, but I can see the pattern. Do you suppose that that is one of those continuation eggs we see, and the dollar keeps going down as it passes beyond the egg?
Post up your chart Bucky!
ReplyDeleteCould be a springboard egg, excellent deception that springboard egg. Just when it looks like it is going to fall off the edge of the earth......bing! boing!