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Well, Gallacher's point is that in the long run, you'll be taking _many
more_ losses by placing stops this way (adding up to the same amount as if
you had placed stops "correctly"). For instance, in your example, what if
the market retraces $1500 from your entry 3 times and then goes on to a
huge gain? You've lost just as much (more actually). In the grand scheme
of things, the initial trade was actually a winner that didn't have enough
room to breathe. As I mentioned this concept seems borne out in my own
testing.
-David
At 09:54 AM 9/27/2004, jack zaner wrote:
Hi Dave: Let's say I am trading a simple SAR system and I buy a long
breakout with a $4000 risk. If I wait until the short reverse signal, I
lose $4000. If I put in a $1500 stop, haven't I saved $2500- - all other
things being equal. I agree that arbitrary stops have no relation to market
action- - they are more of a psychological crutch- - but they can, and do,
prevent catastrophes. Much more complicated than Gallacher makes it seem.
Regards, Jack.
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