how to honor Honor Stop Loss properly?

[actionjackson 2]

As a new trader, I read in Andrew's book that the best trades work in your favor almost immediately, but i'm wondering about the ones that don't.

Regarding stopping out, i'm trying to get a sense of which approach is best.

1) When the realtime price action touches stop loss, should i stop out immediately?
2) or should i let the candle close below stop loss before stopping out?
3) or, should i give it a few seconds to see if it bounce back (before candle closes), and then if it doesn't, stop out (even before candle closes)?

It seems the only way for consistency & predictability of risk management is option #1.

but I'd like to hear various perspectives and wondering if there are any exceptions to this.

another reason i'm asking is i want to make sure im interpreting Andrew's strategies properly.

Thanks i appreciate any feedback or insights!

Edited February 23, 2021 by actionjackson

[johno53 2]

Hey, Chris:  

I've also just started here - very steep learning curve! We can compare notes, if I survive the experience....

John F., M.D.  ;-)

[actionjackson 2]

Sounds good John!

I'm hoping to see more responses here. 

on page 165 on andrew's book "how to day trade for a living", in the section on "moving averages trend trading", Andrew mentions that experienced traders wait for 5 min. candle to "close" beyond stop loss, rather than simply price action breaking it in realtime.

to me it seems essential to close out position immediately as soon the stop loss is even touched, in order to stay true to the profit loss ratio which we accepted upon entering the trade.

if we wait for a candle close, the price action might far exceed stop loss by that point.
i understand this might be specific to the moving average trend strategy, as Andrew mentions it unfolds slower compared to other strategies, but to me it seems to be a slippery slope.

Does any traders in here ever make exceptions to immediately closing out position as soon as price touches stop loss even once?

seems like a very interesting topic to hear several perspectives on, but maybe thats because i'm new to trading.
Just want to be prepared when i start trading real money, and give myself the best chance at success. thanks for any feedback!

i also realize we all have our own styles, and feel which guides our decision-making.  just wondering if this decision has any variance depending on the situation, or, if its a hard and fast rule (aside from moving average strategy mentioned above by andrew).

Edited February 25, 2021 by actionjackson

[johno53 2]

I understood this to mean that optimally the deal is sealed at that stop price. But he also mentions that the market can breeze past that price without acting on it, in which case you'd have to manually activate a stop (e.g. with a sell-now-at-bid button -- which I've programmed as a result of losing out in a fast-moving market.) I think the ideal would be a 2-step stop; if the market blasts past the first one, a second one set to a level just below (to prevent losses for a bull market) or above (ditto for bear) would be there and would fire at Ask or Bid to ensure that it has a good chance of being filled before disastrous losses. 

Possibly this has been set up, but I've not seen it anywhere.

It's too bad the programming for the hotkeys is so crude; a real programming language would have this sorted with a couple of lines of code.... I'd be happy to be a consultant to do this for the right price 🙂

John.

[actionjackson 2]

Thanks for the reply John!

im more focused on wanting to know the exact time a trader will close out the position, not so concerned with how they do that (hotkey, pre-made stop limit, etc)

like if im long @ $10, with a $9.90 stop loss, and the price is hovering around $9.92, but then lowers and touches my stop loss @ $9.90 or even $9.89.... is that common knowledge that under no circumstances should i "ride it out" any longer, and should absolutely sell right away?

or, is this more of a "feel" thing?

i'm just trying to get a sense from profitable traders, what their take on this is... its' one thing to have a trade plan, but we all know its an entirely different thing to actually trade that plan.

so i was thrown off when Andrew mentions that he waits for candle close to break 9EMA support or resistance before stopping out, on moving average trend strategy, as opposed to automatically selling immediately when the price breaches 9 EMA (stop loss) in realtime (before candle closes)

it got me wondering if this same logic applies to any other strategies, or, is this one scenario the only exception to "selling right away" once the stop loss is breached.

Edited February 26, 2021 by actionjackson

[Justin 264]

1 hour ago, actionjackson said:

like if im long @ $10, with a $9.90 stop loss, and the price is hovering around $9.92, but then lowers and touches my stop loss @ $9.90 or even $9.89.... is that common knowledge that under no circumstances should i "ride it out" any longer, and should absolutely sell right away?

or, is this more of a "feel" thing?

As you're a new trader, personally I think you should 100% use a hard stop. So if your stop loss is $9.90 and the price hits it - it exits you out of the trade automatically. As a new trader a hard stop will protect your account.

Yeah, one day you'll stop out by a penny, and it will reverse positively in your direction... But that's better than your new emotions getting in the way, not exiting, and letting your loss build up.

Andrew is an expert who uses mental stops. I highly advise against doing that to start.

[actionjackson 2]

Thanks Justin, thats exactly what i'm looking for.