Wednesday, March 25, 2009

March 25, 2009 Wednesday No Afternoon Trades

Due to the volatility in the afternoon I just stayed out and watched the market. I saw no retracements I wanted to hop aboard short on and didn't want to go counter-trend against a sharply falling knife. One thing I do before I enter a trade is to measure the stop that would be taken if I am wrong. If the stop taken would theoretically be too big from the entry price I don't take the trade. I like stops which are between 1-3 points, preferably closer to 1. However if your stop placement is too close (small) you usually don't have enough confirmation in either price or your indicators that the trade entry is good. Therefore a balance needs to be struck between a small stop and better confirmation to create a "reasonable" stop. When the volatility shoots up, you had better have extremely strong layers of support/resistance to protect your stop. Also, if widening the stop to compensate for volatility, you should cut back contract size so that the risk if stopped out would at least be the same as a trade in normal volatility with higher contract size.

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