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Any of you chaps think the downward channel will remain intact and expect it to hit 9800? There was some very poor data out of the US last week - a good time to sell the $

I don't see any other support levels before then Baughfell.

The Dow

Here's some stuff about stops that some might find interesting.

Exits - Are Your Money Management Stops Too Large or Too Small?

by Chuck LeBeau and Terence Tan

It seems that Money Management stops are either too close and subject to frequent whipsaws or too far away and expose our capital to large losses. From the results of our testing, we have concluded that most systems would benefit from the inclusion of relatively large money management stops.

At first thought it would seem that the closer the stops and the smaller the losses, the lower the expected drawdown. However, this seemingly logical assumption does not hold up in testing. In almost all cases the wider stops result in a higher winning percentage and a lower drawdown. Smaller stops appear to be psychologically attractive, but may actually deteriorate system performance because they are susceptible to frequent "whipsaws" caused by random and insignificant price movements. On the other hand, large stops may also be psychologically attractive because they are activated less frequently, and systems with large stops generally tend to have a higher percentage of winning trades. However, the down side is that large stops force the trader to occasionally suffer rather large losses which, although infrequent, can be psychologically difficult to accept as well. Is there a compromise solution to this problem?

We believe there is. An interesting phenomenon we have observed from our research is that it is often possible to tighten the money management stop a short period after the initial trade entry. It has been our preference to allow the trade some latitude to work out in the beginning and this is best accomplished with a relatively large money management stop during the first few days of the trade. However, after a specific number of days the money management stop can often be reduced to a much smaller amount. For instance, if we have a $5,000 stop upon entering a trade on the S&P 500 futures market, and this is an uncomfortably large loss to take, it may be possible to leave the $5,000 stop in place only for the first few days, and then tighten the stop to $2,500 for the remainder of the trade. The chances of being stopped out late in the trade with a $5,000 loss have been reduced, although it is always possible that a large adverse price movement in the first few days could still stop us out with the maximum loss. The exact stop amounts and the time of implementation would have to be determined by computer and statistical analysis of the system's characteristics. In some trend-following systems, we have found that we can benefit substantially by implementing a larger stop in the beginning of a trade, and then reducing the original stop by 50% or more once the trade is underway.

This technique of tightening stops after a few days in the trade has a sound basis: we know that the predictiveness of a trade entry indicator declines as the trade moves out into the future. In most cases an entry indicator has a better chance of predicting the price movement in the next 2 days than in the next 2 weeks. Starting off a trade with a large money management stop allows the trade sufficient room to work in the right direction, since it corresponds to a period of high confidence in the entry indication. As the trade moves out into the future, the confidence of the entry indication declines, so we tighten up the stop to reflect decreasing confidence in the trade.

Other possibilities for dealing with the problem of large stops also exist. Stops such as breakeven stops or profit protection stops that over-ride the money management stop can easily be implemented in later stages of the trade. Once these stops are activated, the possibility of taking the large original stop loss is substantially reduced or eliminated. These and other techniques will be fully discussed in subsequent chapters.

Conclusion

Proper understanding and implementation of the money management stop is vital to a trader's survival. The stop effectively limits the maximum loss that may be sustained in a trade, which in turn contributes to the all-important goal of preservation of capital. Trading without a money management stop is to allow for a high chance of catastrophic loss in your account.

The importance of the Money Management stop is aptly summed up by Jack Schwager with this statement from his book, The New Market Wizards: "If you can't take a small loss, sooner or later you will take the mother of all losses."

About the Author: Chuck LeBeau is the co-author of Computer Analysis of the Futures Market, and the former co-editor of Technical Traders Bulletin. Chuck is a featured speaker at IITM's upcoming How To Develop A Winning Trading System Workshop, November 12-14, 2004.. Chuck has 27 years experience in the markets and is widely known for his specialized knowledge of technical analysis. He also develops trading systems and currently runs a website devoted to trading topics; http://www.traderclub.com. This article is under Bulletins from the "forum" section of Chuck's informative site.

Snoball, thanks - good article.

Hi JJ50, snoball et al:
My view on the dow - Think we are going up for say 3-5days 10200max and then splat down again.Thats my view. Also MCSFT reporting today?

rgds
zarif

Is it going to break 9800? Testing it for the 3rd time this week

9790 - looks like you are right Baughfell and zarif .... just went splat down earlier than predicted!

I think it will fall a fair bit further, there will be lots of positions closed before the weekend especially as its on a 2004 low.

just gone short. bit risky but looking for a double bottom like last time

Braughfell

I also went short overnight. This was based on possible retracement after dow rally, oil getting higher and unease over election and econonmic data coming out this week

Hope you didn't get caught too badly, I got out fairly quickly after the open taking a mild loss. Luckily got it all and a bit more back shorting oil.

Evening all. What will tomorrow bring ... that is the question?

Hi y'all.
Back from a trip to Noo Yawk.
Hope to update the charts today sometime.

I hope you all made lots of dosh today.
If not, why not?

I had a good day yesteday but it was only to recover from some bad trades over the previous days. Nevertheless I am back on my target since I started.

Glad to hear it orky. I hope the good work continues.

morning all:
Well the dow has surprised everybody by doing near enough 800 pts up in a very short spate of time and hardly any retrace. Oil has lost some 7 odd dollars.
Any explanations as NOTHING HAS CHANGED -Bush in power -his last term was not brilliant for the economy -so what difference will it make now with increasing debt,Iraq etc etc.
The funnymentals dont add up either except big MANIPULATION.
Trade what you see and remember the Turn can come on a dime!!!



rgds
zarif

ps: sorry guys as have not been around much lately.

Tom Hougaards market view for today
rgds
zarif

Good morning,



It is quite an interesting situation we have in the markets right now. Yesterday, today and over the course of the coming days we will see some major time and price square outs.



The SP500 went straight into the double top mentioned yesterday. Today is 768 calendar days from the bear market low of 768. It is also 1530 calendar days away from the high on the 1st September 2000 at 1530. There are other things coming out from a price and time perspective as well today.



There will be resistance around the 1176 area which is essentially a double top. Support will be around 1162. The Dow has just managed to make it into positive for the year.



Good luck today



Tom

Dow relentless UP again today- hardly any retraces.
With the MSFT div coming into play around now -will it give chances to short?

rgds
zarif

Hey Zarif, where have you been?

I'm studying PnF charting at the moment. Decided to plump for Updata for the quality of their PnF charts and because it's a monthly payment and can cancel at anytime.

Anyway, the PnF chart for the Dow has a target price of 11100 or thereabouts. Don't know when though but looks like it won't be too long.

There's a prediction for you. It will be interesting to see.

Regards
Harlosh