The trade-off between catching the move and being stopped-out. $study

-Very interesting blog note from Mike Bellafiore at SMB Capital. http://www.smbtraining.com/blog/the-direction-and-the-pattern . Basically , for an intra-day trader you must not only know the direction but also how the stock gets there, (basically will the pullbacks be shallow or deep) or else you run the risk of being right but being stopped out.

- What I take from it is: be patient...wait for the pullback or consolidation to determine your stops/breakout levels. The fundamental question is there is a trade-off between catching all of the move and being stopped out, and one has to decide how and where on that tradeoff line one wants to trade. Waiting for a pullback will give you a sounder stop, but the wait will mean you will miss some of the move. Conversely if you go in early you might be handsomely rewarded, but the risk of being stopped out increases.

-Not sure how clearly I am explaining this, but I think it is very crucial for an intra-day trader to be aware of  this tradeoff...I will try to follow with examples/charts in a post over the weekend....

The link between not using stop losses and Peter Sellers in "THE PARTY" $study

Sometimes (many times!) I go into trades and don’t immediately insert a stop loss order. I then find myself looking at a small loss then a large loss and then a very large loss. I realized that the emotions I feel as this happens are perfectly depicted by the scene in "The Party" where Peter Sellers destroys the bathroom.


He should just have walked away when the water did not stop running; that would be his stop loss order. Instead a disaster ensues. The inability to act and take your losses is perfectly depicted by his bewildered look as the toilet roll doesn’t stop rolling (1minute 55 secs.).