I personally have found that using tight stops produces a lot of stop outs.
Over the years I have given my trades more grace and wiggle room to really work. You could be trading correctly with the right entry but with the wrong stop. The program traders are in hunt of your stop and they know where you should properly place them.
On Tuesday, MDSO (Medidata Solutions) gapped down and technically had more room to go lower until it found a solid reversal area. My bias was to find a short entry on MDSO on the open because a big decline could occur. Off the 1 minute chart I called a short at $42.49. Then I placed the stop over the high of the day at $43.55 giving me a $1.06 risk amount on the trade. Typically, the old school way of trading would place the stop over the bar of entry at $43.15.
See below in the chart that the stock proceeded lower on our entry and made a new low on the day. Then it snapped up and gobbled everyone’s stop over that bar at $43.15 and pushed it up into $43.40. My stop was over the high of the day at $43.55 thus leaving me in the trade since it never traded in that area. I placed my stop at a point that if the stock moved up there I would not want to be short anymore. The key to having a correct stop is to place your stop where the price action into that area invalidates your setup thus stopping you out.
Stay in the game of trading by giving your trades time and price action to work in your favor.
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