From my experience, it does not seem to be good to use Buy Stops and Sell Stops.
Why do I say that?
Well, price reaches the Buy or Sell stop, and then suddenly moves against you. It seems best to wait for a clear signal before entering a trade, to wait for the candle to close rather than use a Buy Stop or Sell Stop and hope it will continue to move in your favor after it hits it.
What has your experience been with Buy Stops and Sell Stops? Have you had much success using them, or has your experience been similar to what I have described above? If you have had success using them, what strategy have you followed to make it a success?
There are traders that wait for a candle to close that crosses the price level that would have had the stop on it. Then, they get out during the next candle unless the price moves in their favor and closes back the other way toward profits. Usually what they are doing here is trying to avoid getting stopped out by a wick that touches their stop only to be followed by a continuation of a trend in their trade’s direction. The costs of this of course include that they may end up just getting out with either a bigger loss or with less profit than if they had simply left a stop in the market and it takes more time and effort to implement without a robot doing it for them. I just go the cheaper route and leave stops in the market.
It can do exactly the same thing with a market entry, though.
The idea is that you determine your buy/sell-stops to be at levels where you think that’s less likely to happen. Not always successfully, of course.
Whether you use market entries or buy/sell-stop entries depends entirely on what kind of trading system you’re using, doesn’t it?
For example, with breakout-based entry parameters, it’s kind of fundamental to use buy/sell-stop entries.
I use them routinely for one of my systems, but use market entries for the others.
I don’t “follow a strategy to make it a success”: it’s the other way round - I [U]choose the entry order to match the parameters of the trading method[/U], not [I]vice-versa[/I]. The profitable system for which I use buy/sell-stop entries is one which has range-breakout-based entry parameters.
All sorts of market participants use various types of orders. It’s not the type of order that will determine your success. It’s your method…basically where & why you trade, as opposed to how.
That’s very good theme. It absolutely depends on trading strategy, sure, but in general and for “suitable retail trading”, stop orders on entry are the best approach. From objective point of view, based on algorithmic concepts. Percentage of success is in my research highest. On the other hand, limit entry is the worst. But again, it depends on your strategy, idea, approach.
