July 21, 2004
We generally do not recommend that you set your
personal stop-losses or limit orders based on our own stop-loss price.
The market has a habit of hitting stop-losses simply because they are
there . You see, the market makers (and the large institutions) have
access to a plethora of market data, including information about where
the majority of stop-loss orders are placed. If enough stop-loss order
are clustered around a specific price level, the market will not
hesitate to take them out. You can see evidence of this on 7/21/2003
(see example below), when the market barely reached our QQQQ stop-loss
, took us out of the trade, and then immediately reversed its course
to head higher.
We know from experience that when you
place a stop-loss order, the market will not hesitate to take you out,
assuming there are enough orders clustered around that price level.
You never know in advance whether or not the market will
reach our stop-loss, but you can be assured that when it does, we will issue
a "cash" signal. If our stop-loss is hit, you will always be able to close
out your trade on the same day (if you are watching the market during
trading hours); alternatively, you may close out your position once we have
issued a "cash" signal. If you are following our trading signals, you can
handle the stop-loss issue in one of the following ways:
- Do not place a stop-loss order at all - simply wait for our
email-alert;
- Do not place stop-loss order when you enter the trade, but place one,
once the index approaches that price (the one you set as your stop-loss);
- In order to avoid the clustering of stop-losses around a specific
point, place your stop-loss in a range of plus / minus 0.5% around our
stop-loss;
- Place a stop-loss order that suits your own personal risk tolerance.
