Q: Stops have been quite bothersome for me. I’ve talked with and read from a few ex-Market makers, and they’ve shared how they take out stops and why. I’d love to hear about any methods you or fellow traders use to protect your stops from being taken out. Joe
A: Recently, I was surprised to read a highly negative opinion on stops from a longtime market analyst whom I respect. He recommended using no stops at all, which I would find simply impossible to do. I’ve also come to learn through experience, however, that I used to set my stops too tight. From conversations with some more experienced traders, I found that’s a common problem for novice traders. The typical prescription is to lower the position size and set your stops wider. As for the market makers, their job is to move the price towards liquidity. A lot of people tend to put stops in fairly obvious places (like a penny less than a swing low), and the market maker moves the price there if it helps improve liquidity. If you set your stops a little lower than an obvious point, you might be better able to stay in the position. This, however, is dependent on your method and is also, of course, a trade-off with greater potential losses. R.J.
