The Drummond Geometry Forum

I have a question on stops. In lesson on stops, it says to put your stop beyond further out support( for longs for example) on the day of entry and that stop is only for that day. As far as I understand, you adjust stop daily and keep it at daily s.o support. Now if for next day, we find that daily nearby support has been lowered, does it mean one should lower the stop?

HB

Good question...

It depends on what your inprepretation of the quality and validity of the trade is. If you are unhappy with the price action / flow on the LPT as you monitor it, as well you might be if price has forced support lower than the prior day, then maybe be conservative and keep your stop where it was on the prior day. But if you are confident in your trade analysis and your analysis is supported by some objective observations re flow and other measures of strength, then leave your stop loose and move it lower to the new further out.

Stops are a complex topic and will generate some mental fits if you want to have a firm rule that never changes and that will always protect you and never take you out of trades that you should stay in.

Most people set stops far to close, actions that attempt to reduce risk but actually increase risk.

One way of thinking about stops that I have grown to like is to set only wide "disaster stops" that will protect you against some wild unforseen event, like an assassination or major terrorist attack. Then as you monitor you apply another sort of stop.. a mental stop based on price action doing what it should not do over several LTP bars... changes in flow etc. The Alerts software may give some assistance in montioring this sort of stop automatically, and the Set-ups software we anticipate will also do this.