The markets are very good at “running” through “Tight Stops”!
The initial perception and reaction to price action on Thursday, February 7, 2019, after the opening bell, is that price action will continue slightly sideways from the pre-market consolidation area or continued the downtrend.
|Pre-Market Analysis||Post-Market Analysis|
Notice price action initially tried to move lower after the opening bell, but without enough strength and momentum to the downside, price action initially took the “path-of-least-resistance” and after a short-lived rally above the opening bell, price action rolled over into a mini market cycle phase 4 and now with some strength, aggressively moved lower.
Using our 3-Step 1st-Hour Strategy, we know that the price action is not going to hold, so any scalp trades LONG we take during the 1st-hour are short-lived in terms of profits and we reduced our position-size to mitigate any big risk.
Once we got confirmation of lower highs and lower lows…we increased our position-size and became more ULTRA-Aggressive with our trades!
Now, let’s focus on the idea of “Tight Stops” vs “The Appropriate Stop”.
If you look at any of the setups that easily provided follow-thru and profits, you will notice that if you put a 1 or 2 point stop, almost consistently every time, you would get stopped out.
Now if you put the stops in the area where price action indicates a “change in momentum” then you easily stay in trades and as price action continues trending…you would end up with multiple winning trades.
and on and on for the remaining trades.
For most aspiring traders, tight stops are attached to their trading psychology of focusing on “small loses” and not on giving the trade adequate space (i.e., room to move).
Tight stops usually lead to an increase in the # of losses and makes it extremely difficult to recover and gain profits.
Using the “appropriate stops” is a good habit of an experienced trader!