BPA trading room Q&A: June 17, 2015 (Part 1)
Last week, you discussed proper stop management using the ES chart June 11th as your reference. In your book “Trading Price Action Trading Ranges,” you talk about initial stop just beyond the signal bar. Can you use a different stop strategy? Can you elaborate on the subject?
Video duration: 4min 2sec Total (Parts 1 & 2)
Video transcript — Stop management
Stop management optionsYeah. In general, if a trader is buying a reversal, like here’s a possible reversal, a good location for a stop is below the bar, right? So if you buy above that, protective stop one tick below.
On the other hand, if you think you might be in a trading range and you think that the market might have one more leg down, and if you’re able to trade bigger, you can — instead of getting stopped out there — buy small above 10 and buy more at the 10 low and use a wider stop down here [about 4 points lower], thinking that — if we do fall below 10, we will reverse up.Had that happen last week, one day. Maybe this was it, right? Typically in a situation like this when I think we’re going to reverse up, I’ll buy above 4 and I’ll buy more at the 4 low. And on this particular day, I did not. I bought above 4, put a stop before the 4 low, and then ended up buying again over here [above 13].
Using wide stop for higher probability
I think both are mathematically acceptable. I think most traders, in general, if they buy, they should put a stop below their signal bar if they’re buying a reversal. So if you buy above 4, you stop out below 4; you buy above 13, you stop below 13. However, if you’re pretty confident about your read and you’re able to use a wide enough stop and trade small enough, you can do the opposite. Instead of buying above 4 stop below 4: you buy above 4, you buy more below 4, and use a wide stop.
BPA trading room Q&A: August 17, 2015 (Part 2)
Say you are Always In with one position, and then you scale in once. Imagine your scale in stop will be where you first position will be before a strong leg. But where will a scale in profit target be now? At break even with the first position? Or how would you manage it?
Video duration: 4min 2sec Total (Extracts 1 & 2)
Video transcript — Scaling in
Scaling in methodologyOkay, that question — I talk a lot about it in the new videos. It comes down to disappointment, okay? So he’s saying, like let’s say you buy the 20 close, and then you add on above 25. Where do you get out? Do you try to get out at the 20 close? This pullback’s really not deep enough; let me find a different situation.
Okay. Let’s say you buy the 37 close, right? And you say, “Darn, look at that. I’m going to buy more above 41.” How do you manage, right? It’s Always In Long, 37; you buy the close 37. How do you manage it? You buy more here [above 42].
Different traders: different analysis and choice
Some traders will say, “It’s so disappointing. I’m just going to get out breakeven on the entire position,” so one entry here [above 37], other entry here [above 42], breakeven on the entire position is the average entry price, which is here [above 44], so some traders will get out here [above 44].
Other traders will say, “Ah, it’s going to get back to the 37 close. I’ll hold and I’ll get out half here [above 37] and then I’ll let the rest ride and see what happens.”
Other traders will say, “Eah, looks like a trading range. I’ll get out the whole thing around the 37 close, maybe a tick or two below just to be safe.
Other traders will say, “It’s a higher low major trend reversal. I’m going to take a chance. I’m just going to swing the whole thing and put a stop below 41.”
All of those are rational, reasonable decisions, and it does not matter which one you take, right? So, one extreme is to be disappointed and just get out breakeven on the whole trade. The other extreme is swing the whole thing, right; and then somewhere in the middle you take profit on part, you swing part, you take profit on all and look to buy again.
I tend to do the middle position. If I’m disappointed, I rarely will hold the entire position and swing it up.
More on scaling in… Ask Al blog