Mark,
How about opening a topic in the learning area about stops and another about 'specialists and market makers'. There's a lot of misinformation out there. Most successful traders (at least on this board) use stops, but my experience has been that stops get run if I leave them open too long (even way out of the money), so I now only use mental stops (stocks only). Maybe the FF contributors would be willing to share insight.
Thanks,
Dale

I'd love to hear more discussion about stops. Sometimes it seems no matter what strategy I use for stops its wrong, or that "they" are watching me. On my CANSLIM breakouts I am putting in a hard stop of 7-8% on entry, and then mostly using soft stops (mental stops) after that. Too many times I've been taken out on downward spike when I use a trailing stop. I've experitment with a "chandelier stop" which is basically the highest high - (coefficient * average true range). Its helped me out a few times, but hurt me too.

With swing trades I always use hard stops, and it hans't been a problem. For daytrades I'm still figuring it out.

What about the rest of you?

I like to put stops just below key moving averages like the 20 or 50. But on new positions, I mostly keep the stop mental for awhile or make it very loose. Once I'm in the green by a decent margin, I like to put a hard stop at breakeven. And once I get a big enough profit that I feel a need to protect it (which for me is usually in the $500 to $1000 range), I will move the stop up on at least half the position. But I never use automatic trailing stops (except occasionally for daytrades when I have to step away from the market). I prefer to trail manually based on what looks like a reasonable technical level. If I get a very fast move in my favor, I will set the stop at about 50% retracement of the move. If I get a very fast move against me and I don't have a stop in place, I will often try to hold a bit longer and exit on dead-cat bounce (though that's dangerous, of course).

I'll be moving this over to IU when we get some more info on it...

Good idea.

Mark

Thanks for starting this thread. I, for one, really appreciate it. If possible, could it be expanded to include:

How long do you hold on to a losing trade going against you? Pre-set dollar amount, percentage, combination?

Do you let a winning trade just run, or do you take the profit off the table after a certain amount, percentage, etc, and let the rest run.

I'm just interested in how you successful traders usually do it.

Thanks.

I feel stops are a money managment issue, and are not necessarily market price movement related. I see two parts to trading, operational and executive.
The executive part controls all major account decisions, like making sure you are alive to trade, again and again, and thus sets the risk for all trades be it percent of balance or set numbers of dollars to risk on any one trade. The operational part determines the size of the initial position relative to the traders objective on that individual effort and the state of valatility of the particular maket in relation to how far away previous daily or weekly lows or highs are, depending on if one is going short or long respectively. And of course the operational part of the traders brain has to decide how strong, how likely, the trade really is. An example would be having only a long side bias in this present equity market. Top picking is clearly a low percentage effort and so any protective stop has to be tighter because of the real world risk of gap up and explosive sentiment being against one.
One could write an entire book on stops. I know others who if long and the market is against them, will only get out of their long if they feel they must then be short. Others rightly fear whipsaw and set large stops on smaller positions.
I think in the end the only answer is the psychological makeup and risk tolerance of the individual combined with their trading experience level.
norton

"Stops" is one of my favorite topics, mostly because it is so important.

1. All stops are arbitrary. Seems like no matter how you determine where to stop or where you set them, you can always look back and find many where you'd have been better off if they'd been somewhat different.

2. The Stop is where you accept that your position is probably wrong. Surprisingly, it's not especially important where it's placed on any one trade. But it's critically important that you ALWAYS, ALWAYS use them. Hard stop or mental, just do it.

3. I try to think of the entry and stop as part of the same trade. That is, I want to get the position on as close as reasonable to where the stop would tell me "you're probably wrong" without risking too much. The best way IMO, is through reading support and resistance on the charts.

Let's say you're playing a long on the Dow index. You can see something on the chart that says to you, "should bounce there, if tested".... trendline, congestive low, rising moving average, whatever. You can either wait until it gets close and buy so you don't have to risk too much (however, it may not get there and you'll miss the opportunity), or you can buy now and risk a small amount of buffer below the break of your support. If you're trading an index, you can use .5%, 1%, 2% buffer below support to cover "overshoots".... beyond that, you must conclude that support is NOT holding and your play is simply wrong.

Bottom Line...
a. Stops on longs go just below support buffer ... stops on shorts go just above resistance buffer.
b. If you don't have good stop discipline, it's only a matter of time until the market wipes you out.

Over the years, the market has "taken a few runs at me"... to get back all my gains and then some. The primary reason I still have some money is because diligently exercising stops has been the BEST part of my trading since day one.

I remember someone posting that they used volatility stops but I've never seen any real details. Can someone post either some info on these or a link to info?

Also, anyone have thoughts on when to get back into a position once you've been stopped out? If it comes back above your stop point do you re-enter?

SSB

I do not use stops period!

James Quillian

if you don't use stops you don't trade futures, and/or what was put on as a "trade" becomes an "investment grade vehicle" suitable for long term holding
norton, not being sarcastic, just pointing out what personal experience has taught

James,

Would you please elaborate on your reasoning? I can understand why mental stops may be preferable in certain situations, but isn't trading without stops somewhat risky??

I thought trading without stops was called buy and hold investing...

All stops are not "arbitrary". When building trading systems I include the stop loss as the exit signal. Which means its part of the optimization of the trading system.

I also use a trailing volatility stop that can get tight or loose depending on volatility and it can also track down under the right conditions and often does.

So my backtesting is very much related to stops and I use a system that helps to optimize the stop as I can use various degree of tightness for the trailing stop.

It sometimes amazes you in backtesting how different degrees of "tightness" on a stop signficantly affect profit or loss on a stock traded. One thing that worries me is if subtle changes in a stop have a radical affect on the outcome. At that point I suspect the profitable stop may actually be overoptimized and not very useful going forward.

I'm only an amateur but love the stops. Any issue I can slap a stop on saves me from making emotional exit decisions on the fly. It's a pain to keep adjusting them but on the winners it's always fun moving the stops up.

Even when trading patterns I'll toss on on various trailing stops and eyeball them to see which one I want to use...then trail it along on the play. Now that is a more arbitrary use but so far it seems effective. It's just not worth my time building a system for a one time pattern play.

You are right. I don't trade futures.

I have traded futures both using stops and not using stops. On balance, when trading futures, I have still come out better without them. Still, I wouldn't suggest anyone trade futures without stops unless they are very well financed.

I would not agree that what starts as a trade becomes investment grade just because a stop isn't used although I guess it could.

Stops fit into some peoples trading statagies and I don't have any vested interest in talking anyone out of using them.

Still, I think stops have become like a sacrament to technicians and I fail to see why their use needs to be automatic. Stops have always messed up my best trades to the extent that I am personally better off deciding to buy or sell moment by moment.

It always surprises me how experience can teach two different people exact opposite lessons. No sarcasim intended here either.

James Quillian

Interesting question...

When this happens, you could be thinking... "the play was correct except the stop was too tight", but the trade could be in a sideways chop and stop you out a second time.

Suggest you not think of it as "back above my stop", but rather evaluate the situation with the updated data as though you had never taken the first trade. The situation "now" should stand on its own merit without regard to your getting stopped earlier.

It seems to me that even if you have optimized a stop loss against a stock is only has a certain probability of being right. So it also has the chance of being wrong.

One thing I like to do is analyze the exit from the view of trend, support=resistance. For instance, if the stop loss says stop exactly up against a support line...I'll wait a day to see if support holds.

By way of explanation, I only have the luxary of taking or not taking a stop signal in my company retirement accouts where I'm trading funds and can use no actual stop loss.

In my stock trading via other accounts I use a hard stop at the broker...no decisions to make once the stop is breached.

Lots of things to consider when playing stops.

Current market conditions
Risk tolerance
Size of the trade
Support areas
Ma's
Patterns
Volume
Length of trend in directions of stop
Nearterm t-lines
Longterm t-lines
Nearterm trade?
Longterm trade?
Fundamental play?
Technical pick?
Penny play?
Large Cap?
Volatility
distance from base
Sector performance

Well, there is a bunch of things off of the top of my head. No wonder there is no black box technique for applying stops.
best to all!

I see your list as considerations before the trade. After that it's "making a play for [something] to go up (down), and risking 'X' amount on it".

I believe a trading method needs to be simple to have a chance of being executed decently well. That is why I trade on price + 1 range indicator.... and I don't think it matters which range indicator you use. Just pick one and have a sense of how it behaves in various markets.

Well,
Here is one application of stops /in a perfect world/.

Suppose you have 100000 $ account.Let's also suppose that you are not willing to risk more than 1 % of your capital ot a single trade.So you have $ 1000 to lose on a deal. Suppose you do not like MO and want to short it . The obvious resistance point is 56.98..Now it is @ 56.58.So you can afford to lose 40 cents on each stock,which means that you can sell short 1000/0.4=2500 shares..
That is the maximum point for you to lose 1 % of your account. Well, in order to short 2500 shares you need to borrow around 41000 from your broker though (..
And sometimes funny things happen- stocks gap overnight etc..But most of the time this should work fine ..

I tested one system for futures several days ago, and it did better without any stops than with stops. But it is always wise to have them. Larry Williams has made some studies on stops in one of his books/ forgot which one/ ,where he shows that a wider stop can increase profitability,while a tight stop can actually decrease profitability to lossess..
However using stops is very very helpful when one is not watching the market tick-by-tick the whole day ..
And also having firm stops lets you cut your lossess without hesitating should i stay in ,or should i sell..
I do not think though that one can sleep at all if that person does not put any stops ..The most important thing in trading is to stay in the game. Sometimes the stop will whipsaw you - sometimes it will save your skin..And since we are all emotional creatures, we would emphaseze on the "missed gain" rather than the loss that might have made us leave the game and try some other business..

there are 2 things...

1. find/develop a good trade system (back tested with up, down, and reversing trends) that you are comfortable with (either daytrade, short term, medium term or long term.)

2. use stops to manage losses or profits, when your trade system says to get in and to get out.

so I use stops for 2 reasons only... when I'm ready to enter a transaction and when I'm ready to exit a transaction, because I have to have a reliable enough trade system that will get me out on minimum losses and get me out on maximum profits, most of the time. so doing the 2 things above should help one to be a better and successful trader.

I believe in stops and their rigorous use, but as was previously mentioned by CGD, there are a plethora of technical reasons where to set the stop. Also, the stop must be set for the time-frame chosen and amount of capital allocated. One must also consider their own risk/reward ratio for the trade when setting stops and must not change their mind and ignore the original plan. I have seen some traders put in mental stops and then ignore them, not good, as it displays a lack of discipline for risk management and an unwillingness to accept that their decision was wrong. Not controlling losses will bankrupt ones account real quick.

"Attention to profit is a sign of trading immaturity, while attention to loss is a sign of trading experience" - Alan Farley

Hi darnelds,

Just my basic thinking,

Regarding 'stops'.......Being a 'position' trader,i think i would be at a disadvantage if i let Mrs Market have a look at my future intention/stratergy regarding my trades.

i.e.....Card game analogy.....You wouldn't want to be dealt your first two/three cards face up,so as to give your playing opponents an edge over you,would you?

So as a 'position' trader i only use 'mental-stops'.

But for short-term/daytraders....I'd have thought 'stops' would be essential.

Regards.V

Sorry should add,

I and most on here can watch the markets day in day out as we choose....This is my/our job full-time.

But the vast,vast number of investors/part-time traders out there can't because they hold full-time jobs else-where.

So imho,if you can't watch the markets day in day out then 'stops' are essential.

Regards.V

Yes, I do not enter a trade without knowing where I will get out.
That said, my stops for December and January were to not have stops, due to market conditions. I would have re-evaluated that decision had the market conditions changed ...
In the current market environment, the stops are like a credit card to me. I won't leave home without them...

I very seldom only use a $ amount for a stop, it is normally an objective exit.
best

1. Of course, Williams is right. During periods when your plays are "approximately right", looser stops will produce more profits. But when your plays are "approximately wrong", tighter stops will protect more capital. But in real-time, you don't KNOW which yours are, so whichever you choose is arbitrary. Maybe you choose well, maybe not so well.

2. A stop can be mental. Just because you don't place a hard stop on the trade does not mean you are trading without it. However, a mental stop is easier to override because you have to "do nothing" to let it extend your risk further. And though mutual fund traders can't "place" stops, selling at the end of the day when you are throwing in the towel on the trade is your stop.

We just saw a classic example of how one could have been trading without stops for years and "gotten away with it".... only to get killed in one swoop. That is, the March, '00, top in the Nasdaq. The drop was so severe that many tech players were effectiely wiped out. Even those still hanging in have recovered only a fraction of what they lost. They're still haning in, of course, and will lose the rest of it when the world wakes up to the "Al and George Deception Show". Hence my earlier comment, "... if you trade without stops, it's only a matter of time before the market wipes you out..." Might be a long time and you might have a sense of security (false one), but routinely using stops is the price you pay to make sure you don't get caught up in the one circumstance that blows out your portfolio.

PS I experienced a situation in the '80s where someone was famous for "Not having a losing trade in 20 years", then got wiped out in ONE event. It was written up in Futures Magazine. If a few members PM me, I'll post the story.

OK, the story.

In the early '80s when I was a newbie, I came across some promo about "NEVER had a losing trade". Well, I HAD to know about THIS! They don't give you much detail until you pay your money, so I signed up.

I can't remember his name, but his play was to wait until the market/stock got oversold or overbought, then average into it 5 times with a stop wide enough that it had "never gone that far before". (a) I was amazed that this strategy had never failed, and ( thought one day it will and it'll be a disaster. (I said I 'experienced' this.... I didn't get caught because I didn't play in what followed shortly....)

In '85 or '86, if I recall, the market got overbought and he started averaging into it in SP futures. The market extended enough to get all 5 positions short and he even had a WIDE stop... and of course, a broker's margin call beyond that if necessary.

Long story short.... the market continued to extend (check the charts if you got 'em) until the broker's margin call stopped him out. There was such an uproar from the losers that the CFTC looked into it. Bottom line and to put it into money terms, "If the total accumulated over the last 20 years of zero losing trades = $100,000, the investors lost ALL of the $100,000 + a $75,000 MARGIN CALL")

While I'm at it, another story....

A friend in Texas told me about an advisor guy who was managing money for the members of his church for free. How nice.

Long story short.... After the top in March '00, he "bought the dip" in ProFunds leveraged Nasdaq fund.... Thinking it just HAD to bottom and turn up, he rode it all the way down to the point that not only did he lose effectively all of everybodys' money, he also lost his business, house, and Mercedes. (Stops, of course, would have prevented this... Heck, even I "bought the dip" a few times after the '00 top and lost some money myself. But stopping out saved my bacon to fight another day.)

These two stories illustrate one of the market's most ironic brutalities.....

"All you have to do to get knocked off is keep doing what has been successful in the past".

It also illustrates what is an eventual CERTAINTY... "Trade without stops and you risk it all"... unless you're fortunate to quit before the circumstance catches up with you. We should all be so lucky.

That's the other side of it right? I mean if you've read "Fooled by Randomness" the odds that someone like these people are out there and will trade in such a way that will eventually lead to disaster but they will just happen to retire and stop trading before the rare event or the inevitable event comes along that would have wiped them out.

That is, randomness tells us that there are people out there with seriously flawed systems that will survive a very long time, perhaps through an entire career. You get enough monkeys typing on the typewritter and eventually one produces something that make him look like a genius. But of course he can't reproduce it.

I signed up for a service about a year ago. That service was rated well by Timers Digest and appeared to be a good way to go. Last year the portfolio I followed was horribly crushed and apparently they used NO price based stop loss to tell them when it's time to abandon a losing position. Had I followed that portfolio through to this year I'd be down over 30%. I actually abandoned it fairly quickly after buying the service. But it did influence my thinking and do help me to do some damage in the first half of last year.

But there's a well thought of service with a good long record that totally blew up because they felt they didn't need stops based on price, that their system would not fail. Along comes the perfect storm and then it's disaster time. I believe they were fooled by randomness. Their success proved to them they did not need worry about the downside. The conditions favorable to their system moved on and they had no stop loss to save their subscribers when adverse conditions were in control.

This is a very interesting question, SSB. I have only done this a few times, and in most cases regretted it. When I placed a stop, it's usually there for a reason, i.e. at a technical level that showed weakness and/or a point at which I'm no longer willing to tolerate a loss. Now it's possible that such weakness can be a fakeout, but resumed strength afterward can also be a fakeout. You can get into a lot of second guessing that way. My preference is, when I've been stopped out, to find another trade. It also helps avoid the wash sale rule, which is a tax accounting pain (assuming you're trading in a taxable account).

The exception to this idea would be if you deliberately set a tight stop, with the advance intention to re-enter under certain conditions, if stopped out. In that case, you are simply trading your plan rather than reacting.

But personally, I usually set looser stops at levels where I feel the trade no longer makes sense. In this type of situation, I feel it's better to stand aside.

First, I primarily use a hard stop. I typically like to set a wide stop. I purposely do not set it in connection with a "technical point". My stop is more like a "fail-safe" type of stop....a point beyond which I will not lose any more money.

But my big improvement in taking a loss came when I finally realized that I did not have to wait to be stopped out. Here's what I mean: when I make a trade I have a reason I made the trade. I have certain expectations for the trade based on the reason I made it, and based on the type of trade it is. So my revelation was that when price action starts to happen that is not consistent with my expectations, is not dovetailing with my initial reason, then I simply get out. I don't wait for my stop to get triggered.

For instance, let's say I bought on a retracement back to support. My expectation might be that it holds support, that it rebuilds somewhat, then it starts back up. I set a stop that is a fail safe, but not at an observable technical point.

Let's suppose that it bounces from support, comes back down, bouces again. Perhaps these bounces appear weaker each time they take place. The expected move up does not commence...the choppy action seems to take over. In a case like this I might simply close the position because it is not doing as I expected. I don't have to wait for my stop to be triggered.

I purposely don't set a stop around an observable technical point. Whether this is right for you I cannot say...but I will tell you that in the markets I trade (index futures and stocks) technical points are run all the time to hit the stops. I'd rather let them run that point, observe what happens, then decide what I should do. If it was just a stop running exercise it will move the opposite direction quickly enough. Admittedly, sometimes this costs me some money, but never more than my "fail-safe". And most of the time my fail-safe is not triggered.

One other thing: if I decide to close out because of the technical action, and later the index/stock starts to perform the way I originally thought...I'll get back in again, with a new stop, new expectations.

Finally, I set my stops in connection with the volatility of the market. I want it wide enought to not be stopped out arbitrarily.

IndexTrader

IndexTrader

Here is something i found on money management..I am still "digesting" the concepts of this article..
Moneymanagement

Since the market will do the unexpected, I like to use a hard stop to get me out (the hard stop is at a level that tells me my reason for buying was wrong). That initial stop is fairly wide, but my reward/risk ratio must be at least 1.618 (no coincidence fibo fans). Even a 50% win/loss ratio is nicely profitable with the winners that much bigger than the losers (Kelly value of .2, so 5 or more positions are traded). It seems like so many traders are more focused on winning all the time. Having your winners a lot bigger than losers is much more important...to me anyway. My batting average was .275 in my baseball days, so batting .500 ain't so bad

If the stock doesn't do as expected from point A to point B, I sell into rebounds (A 0.618 retrace is very common). This effectively lets the winners run, although sometimes a winner will turn into a loser . It's the price I pay though.

D

The first rule on stops is simple. Never risk more then 2% of you account equity on any given trade. I am amazed that this has not been mentioned in any of the previous posts. Read Market Wizards by Schwager. This is what the big boys use.

Where does one place their stop? What I use is a volatility stop calculated by the Average True Range (ATR). Stockcharts.com has this in their drop down list of indicators. Let’s say for example my account equity is $25,000. I think that XYZ which is trading at $15 is going to go higher. I look up the 14 period ATR for XYZ and see that it is 0.53. I use the following formula:

Stop = E-(2*ATR)

E = Entry Price
2 = I am risking 2 ATRs on this trade. This can be 3 or 4 or what ever spins you fan.
ATR = Average True Range

So in this example the formula is 15-(2*0.53) = $13.94 If I buy XYZ @ $15, then I am going to stop out at $13.94

The final part of this “system” is to risk 2% of my account equity on a trade. This is pretty simple. I first calculate 2% of my equity. In this case it is $500. Next I calculate the difference between my entry price and my stop, which is $1.06. Finally I divide the $500 by $1.06 and get 472 shares. Done!

One question is what do I do with the rest of the money in my account? Well go and find another stock and run the same process on it. But let’s say that this time your XYZ stock is now trading at $23. I look at my account equity and see that it is now at $28,768.00. I use this new account equity number to make my next calculation for my next trade. My account has grown, so has my 2% risk! I run the numbers in my spread sheet and make the trade and set the stop. I have found that 5 positions does use some of my margin but it’s not too bad.

This also works on the short side but you can figure that out. Homework for the weekend! The beauty of this system is that it will always adjusts your risk exposure to the market. Not to mention it is simple and elegant. Money management does not have to be “deep” or complicated. The simpler the better. K.I.S.S.!

The hard part is figuring out what to buy and what to sell. Not to mention where to place those stops to protect your fat profits while the trade is on. Set this up in a spread sheet and the hard part is punching in the numbers!

Dave

Fibonacci confluence areas can provide rewarding entries to trades with tight stop losses. In the SMH chart example, the market has been selling off and is now correcting the sell off with a bounce off the recent lows.

http://www.ttrader.com/mycharts/display.ph...he%20NET&id=976

The following link is the same chart posted with accompanying text deleted for higher resolution:

http://www.ttrader.com/mycharts/display.ph...he%20NET&id=976


The chart identifies 3 sets of retracement lines. When the retracement lines are in agreement, they reinforce each other. The ideal entry is to place the order as close to the resistance area as possible, then hide the stop loss on the other side of the resistance area. The greatest reward vs. risk trade is a short trade entry at $40.15 to $40.20, with a stop at $40.50, identified by the red rectangular box. The resistance area must be penetrated for the stop to get triggered. A running of the short stops would likely exhaust prior to breaching the confluence area.

There is another weaker confluence area identified by the green box. A trade can be taken at this area, since it's not known if prices will test the red area. In this event, the stop is wider, because if prices clear the green confluence area, stiffer resistance is just above, and the stop should still be hidden on the far side of the upper confluence area.

The long entry is at the stop out level, or if a long was taken at the lows, stops should be tightened or the trade closed while testing the resistance area. A long trade below the resistance area should be considered counter-trend until proven otherwise (clearing the confluence of resistance). If prices clear $40.50, the confluence now becomes support, and a shallow stop would be below the red area at $40.15, followed by a deeper stop below the green box at $39.50.

Does an automated platform such as Tradestation or IB provide the ability to set a stock stop loss in the software (so it's not visible to the specialists or market makers)?

Someone should say something simple like, "Go someplace that has pivot points that WORK, and stick with them for the following day"
For Tomorrow:

TASR PivotPoints: S5=48.73 S4=55.19 S3=65.63 S2=72.09 S1=82.53 P=88.99 R1=99.43 R2=105.89 R3=116.33 R4=122.79 R5=133.23,

If you have never tested Pivots or worked with their abbreviations, then: S=Support, R=Resistance and P is the projected open tomorrow.

Next you gather some basic EOD Moving Averages:
VWAP=86.28
200DaySMA=25.81
50DaySMA=56.10
20DaySMA=65.36
50DayEMA=58.63

And find some site that gives you the daily 50% Retracement Value:
50%Retrace=87.00

THEN you cook them together:

TASR Support/Resistance: (200DaySMA=25.81) S5=48.73 S4=55.19 (50DaySMA=56.10) (50DayEMA=58.63) (20DaySMA=65.36) S3=65.63 S2=72.09 S1=82.53 (VWAP=86.28) (50%Retrace=87.00) P=88.99 R1=99.43 R2=105.89 R3=116.33 R4=122.79 R5=133.23

At this point you have your Swing numbers for a stock you have already bought or shorted. If you are an EOD person who works all day on the East coast, then you should know that P=NEAR the next day's Open... about 50% of the time. Through daily observation, you should know that on boring days it will bounce between S1 and R1, or your source for Pivots is not good enough. And you should also know, when active Traders get involved then your stock will usually move in one of the following patterns: P to S1 to R2, or P to R1 to S2. You can set a long stop between R3 and R2; and you will probably still be in your stock tomorrow night. Or if you are margined short, you can set your stop above R1 and pray before you go to bed.

For you lucky West coast people who get up before 5AM and check the Pre-market, you are not done yet!!!!!!!!!

Early birds need to add more numbers to their S/R, plus know what to look for when you check your stock price. This is exactly why I chose TASR as an example,,, because it exhibits many of the alarms I look for.

Check news for the simple things: i.e. Earnings=04/20/2004, up-grades down grades etc etc

Get the previous days HOD and LOD:
High=95.45
Low=78.55

Check it for distinguishable features:
wr7

After Hours close:
90.70 down 1.55

And any increased Confluence on the charts:
none today

And cook it too:

TASR Support/Resistance: (200DaySMA=25.81) S5=48.73 S4=55.19 (50DaySMA=56.10) (50DayEMA=58.63) (20DaySMA=65.36) S3=65.63 S2=72.09 (wr7 Low=78.55) S1=82.53 (VWAP=86.28) (50%Retrace=87.00) P=88.99 (AH=90.70) (wr7 High=95.45) R1=99.43 R2=105.89 R3=116.33 R4=122.79 R5=133.23

At this point you are ready to see if any of your Pivots are obeying the pre-market moves. I always hold onto the numbers I used the day before in case we get a huge distortion like TASR did today. S/R is normally tighter:
i.e. a Prev Day: S5=76.46 S4=78.51 S3=79.99 S2=82.04 S1=83.52 P=85.57 R1=87.05 R2=89.10 R3=90.58 R4=92.63 R5=94.11 On very rare occasions the previous day's will work twice (something to remember when your source fails).

If you are still around for the Open (lucky dawg) then the opening price inserts into your R/S, and the closest R or S becomes the Pivot. R1 becomes the letter-number above and, S1 is the letter-number below. Your Moving Averages rarely offer Support or Resistance but are often used to visually spot Joe Sixpack's stop losses and will prepare you for the conclusion the once/day guys are going to assemble. The patterns mentioned above will apply to the newly reset numbers so, unless there is strong news, you can set your stops and go to work.

Previous day HOD and LOD are regularly used as entry points by Daytraders during the day, but the reason they are important today is because TASR had a wr7 day. Unless a trade has gone amazingly in favor of a Daytrader, they will not hold over night. In today's action, every trader in the world might have held some TASR overnight, hoping for a follow-through tomorrow; hence the Widest Range in 7 days (wr7). The day after a wr7 I look for two things: 1. the overnight high and the overnight low on the appropriate Futures, and a gap up or down for TASR at the Stock Market's open.

Even though you are looking at TASR, you want to watch the Futures on the appropriate Index because you have three chats to access: i.e. The ESM4, the $SPX Index, and SPY. Take note of the overnight Futures High and Low compared to the Opening price of the S&P. If the Futures opens at either the overnight high or the overnight low, or immediately goes to the high or the low, then there is an 80% chance that the open is the high or the low of the day. Either the Index will stay above the open without a violation or it will stay below the open. You should be able to tell within 10 minutes. Therefore the Open becomes your stop loss.

On the wr7, we LOOK for a gap up or gap down and then buy or short it back into the Previous Day's HOD or LOD. That becomes our target and when the price passes our target we set our stop loss at that target. Hopefully the price will continue in your direction and close without coming back. (A scalp becomes a good trade.) BUT, most of the time you are going to get the scalp.

On a normal day, the overnight position will lead to an equal hedge at the Open which turns to a scalp, and then the stock continues for a follow through. The aggressive Traders are checking the time&sales in case they want to reverse at the target-turned-scalp... a hat trick.

Inversely, the reason you have watched the overnight Index Futures is to determine if the Index and you stock is going to gap and run. You should have already looked up the Beta and how much it has moved against the S&P:

TASR Beta=3.65 chart up 186% against S&P (YTD). A conservative statement would say, "TASR is at least 265% more volatile in the direction with the S&P." So if your Index is going to gap and run; chances are your stock is going to gap and run too. Buy the open and set a 2% or a 6% stop loss, just in case one of the Brokers tries to get on CNBC and smash the stock in order to get one of their funds in or out. If you are trading every day, you should be wise to their disguise. You should also be wise enough to know that CNBC's retirement is heavy into bonds this year, and Maria is married to a Hedge Fund. Consider them the stock anti-rally network.

Simple, but effective stop loss strategy I find works for me.

I'll just post the link rather than polute the board with a heavy article:

http://www.profitwaves.com/Stop_Loss_Orders.htm

You mentioned "back testing" your trading system. Can you give me any advice on how to do this? What software do you use ... if any? Or can you suggest what I can read to learn how to do this? Thanks! C.J.

Trailing stops at online broker

Does anyone have any experience with trailing stops offered by Scottrade or other online brokers?