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Old 08-07-2008, 09:53 AM   #4 (permalink)
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Join Date: Jul 2008
Location: Spain
Posts: 120

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Hi Dave,

Thanks for your reply to my other questions.

I was just reviewing this lesson after noticing something that I changed in my trading that really helped my results. Basically to start with I was placing my stops too tight to minimise the money I could lose.

When I loosened them up (making sure my profit:loss still made sense) not only was I avoiding being stopped out, I suppose I was also benefitting from all the other people who were acting as I had previously and were getting stopped out. Please confirm if I am understanding this correctly - when positions are stopped out en masse there is a sudden buying or selling in the market. If I am looking to go long on a trade and the value spikes down before continuing up, this creates a further sell-off as stops are hit and an opportunity to buy at a lower price.

I'm just guessing here but because the major movers in the market are not individual traders, then this spike created by the sell off from stops being hit will probably be low volume and so won't create momentum in the overall direction of the market. It will however mean I can get a better price, still go long with a good chance of success and basically make money from the mistakes of other traders.

I am new to this so I have probably got things twisted but if you could confirm or correct my understanding that would be great.

many thanks

dave t
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