romancing the stop by kenneth lee

8/12/2019 Romancing the Stop by Kenneth Lee

1/19

Trading Thoughts and Ideas

By; Kenneth Lee


2/19

Disclaimer

As always very few of any of this is a novel

idea of my making, just my interretation of

ideas and facts I have learned over the years and

staring at charts until I was !lind"

If anyone feels I have encroached on any of

their rorietary information lease let meknow and I will edit or remove" This is !eing

made for sharing on u!lic forums not as a

money making endeavor"

#lus also remem!er trading is a lonely

rofession and each erson is resonsi!le for

their own trading decisions" $veryone has their

own ideas of what is a good or !ad trading idea

use this information to !uild your own Ideas"

Thanks Ken Lee


3/19

%&'$(A'D

In my time trading I have seen many eole with

issues similar to these that they have found hard toovercome and most never get ast and finally decide to

give u trading"

I have decided to try and ut some of my own trading

thoughts down on aer " &ne to remind myself on a daily

!ases of what are in my oinion the most cost effective

asects of trading" &r the things that can allow a erson to

move forward in the trading game"

The title 'omancing The )to , Is ro!a!ly !ased on

the most imortant of any one single trading issue that is

a!used to the detriment !y more traders than anything

else" The )to osition"

*oving a sto, adding to a loser to move a entry"Those things will kee a erson from !ecoming a real

trader every time"

I will also ut some of my ersonal thoughts down of

what I look for as to direction and my ersonal entry

ideas" Again this is just my own thoughts !ased on

information gathered over a decent amount of time fromvarious sources"


4/19

'omancing The )to

The one single asect of trading that will make you or

!reak you is using stos correctly" They will reserve yourtrading account e+uity as well as !uild your confidence in

your own trade lans"

The first and foremost thing a sto does is rovide

control for rule num!er;

" Always have enough e+uity to take the ne-t trade"

If you can.t take the ne-t trade you are dead in the

water and will have to wait to save more funds to tryagain" #lus it is a devastating !low to the ego to have that

feeling of a total loss " *ost eole can.t take to many hits

on their ersonalities !efore they decide that this isn.t for

them "

Those that kee fighting the good fight can also !uild

a wall of indifference !etween themselves and their

trading " *aking it sorta alright to continually fail, !ut

neither idea is acceta!le" (e are all in this to at the very

least add to our financial situations and !etter our life.s "

#lus your ersonality will start to suffer and then you can

start to !lame out side things on your trading" Blaming

your family and friends or your other jo!" (hich can

lead to self destruction"

)o we must learn to love where we lace our stos and

reali/e they are our guardian angels, That we control to

rotect us from us" I hear so many eole !laming the

market or the charts on why a trade goes !ad , !ut in


5/19

reality we have no one to !lame !ut ourselves"

The choice of entry style has less to do with !eing a

successful trader than does knowing where to lace a

realistic sto" I watch a few new!ies trade and analysis

their charts and at times one of the most !asic faults is

the use of a reset sto loss" This is the sto you set on

your latform to automatically !e laced with your entry"

The use of that should !e nothing more than to get

your sto on your chart so you can then adjust it to the

correct location" To correct that issue change it from say

0 or 12 is to 02" Then it is so far out of osition youhave no choice !ut to adjust it" #lus within your trading

lan you should have a rice num!er already icked to

where it should go"


6/19

3ere in the title #icture we have two demand levels or

one that is now !eing tested for the second time" But we

can clearly see where our sto should !e laced "

The only thought we have in our minds when we take

a trade is the fact we are only taking it !ecause we think

with the given information we have used to lan our

trade that the rice is now going to go !ack u" &ur

choice of sto location should suort that choice"

(e can see that the sto is !elow !oth levels giving us

the !est chance for a move !ack u" But it wasn.t meant to!e and we got stoed out" But that is good as we (A4T

to !e stoed out if we are wrong !ecause that is why we

ut it there"


7/19

There is a lot on that chart a!ove that was saying that

short was the direction that rice was going , But another

one of the major failings in trading is trying to turn rice

when everything is saying otherwise" It doesn.t matter

what you use to enter , A set of lower swing highs , a

suly level that is holding and !een hit lower and lower

just the oosite of one that is going to !reak" &r even

nothing more than a trend line" They all show the same

thing, #rice is going to dro lower"

But in the overall idea of trading it was more

imortant that we laced a sto in the correct lace than

that we !e right in icking the right direction" Because

even if we don.t have the !est record of icking good

entries we will !e a!le to ick some more since we

reserved our e+uity"


8/19

)o we now know it doesn.t matter as much as our

entry style" The true key is to know where we should lace

our sto and then try and get the !est entry ossi!le

which would !e the one closes to that sto" That limits our

risk !ecause then rice has to move against us less to hit

our sto that reserves more of our e+uity to trade

another day"

&n the !elow chart which is a 5 hr we can clearly see

where we want to lace our stos the to or !ottom of

each swing high or low" )o once we have these stolocations icked it is then on us to find the !est entry as

close to them as we can to limit our risk"


9/19

I have said this a million times your choice of entry

style should !e what you can )$$" In the !eginning none

of us knew which way rice was going when we looked at

a chart" I have always tried to comare learning to see

entries to driving a car " 6ou can ut it all down on aer

!ut it is nothing comared to !eing out there on the road

doing 70 mh trying to remem!er it all at the same time"

#lus just !ecause we now know where stos should go

we can even eliminate those which we see as !eing

irrelevant or against our trading lan direction"I ersonally love the swing highs and lows to ick

direction then add )uly and Demand levels into the

e+uation and it serves me well as my rimary way to lan

a trade" I don.t forsake other !asic trading ideas either

such as retraces 8%i!9 long wicks 8#ins9 or atterns

8 descending or ascending triangles , flags9" But with time

you start to come to the reali/ation that most of those arenothing !ut )uly and Demand levels in a icture form

after the fact" &ther s may call them suort and

resistance, or where !uyers or sellers are entering the

market , !ut the main key is what you can use to get your

entry as close to your sto as ossi!le"

There is no !etter feeling than getting that sot on

entry with little or no draw down " #lus those are the ones

you should always try and hold for a home run as great

rejection right off the entry is a good sign of the !est

choices"


10/19

I have looked at a few different trading strategies over

the years !ut they all had the underlining idea of trading

rice action" They all had great merits, !ut some were to

limited in their tyes of entries not enough" &thers had to

many with different rules for each" But overall they did

work"

But I guess the one thing I took away from them all"

(as the fact that the guys romoting them were making

massive gains not off all the +uick intra:day entries they

were showing , !ut from longer term trading ideas thatreally re+uired not much e-lanation !ut more

commitment to !elieve in your choices"

#lus they tended to trade using a sto as not only a

way to rotect there initial risk !ut also as a rofit taking

tool as well" )ay looking at that 5 hr chart we get a entry

off one of those levels then each time it !reaks anotherswing we move our sto u to !elow the new swing" (e

will continue to make gains until it reverses" If it should !e

a flier we could make a massive gain in just one trade"

$ven those trying to follow trade levels given, found it

hard in the holding art" This is something I have had to

deal with myself and am now just starting to get a !etter

handle on" But it still comes !ack to loving our stos and

using them more as a overall trading tool than just a thing

to desise" As that attitude will not get us far"


11/19

)o let us look at using a sto as a over all trading tool"

(e can see in the !elow chart we have almost 12 hrs to

find a entry within that level at the to" )o as we !elieve

that rice is going down" &nce rice moves to our first

counter demand level" These are the laces if rice was to

turn around it would" As each level is !roken we see a new

suly level formed" (hen rice moves away we can then

move our sto down to where it would !e if we were to

short again at one of these new suly levels after a

retrace"

This is one of the hardest arts of !eing a great traderholding a trade when you or sitting on a large gain" But as

you can see if you held thru those 1 demand level !reaks

the trade was awesome"


12/19

)o we can see how massive gains can !e achieved !y

using a sto as a overall trading tool and in the rocess we

will start to view our stos differently" 4ot as roof of our

failure to ick a correct trade entry !ut as the true reason

we are successful at trading"

This doesn.t mean we can.t take rofits when we see a

reason to" But I would suggest )


13/19

I watched one day as a guy got stoed may!e 7 or >

times !ut never lost a cent" *ay!e even made a few is"

But then finally his entry was at the right sot and he just

let it run and made a!out 102 is" The key is that he

wasn.t looking for a small gain he was looking for the

right entry to the right move a large one"

)o in summary enter as a intraday trader or scaler

!ut hold for the levels on the longer charts"

Then there is style two, Those that can scal as well as

trade longer term" It always ama/es me one I see somethat can enter a osition !ased of daily or 5 hr charts with

huge stos of even hundreds , then in the same day trade

fast charts with tight stos of 0 or 12" !ut their key to

success is that they adjust the trades accordingly" The ??

risked is the same !ased on the sto osition distance" But

it is a rare trader that can kee their mind straight to ull

that off"

)o where does that !ring us" To the fact that to risk

less we should look for the major levels to take trades !ut

if we can look for entries on the faster charts " I ersonally

like the =2 min chart for my entries " It is smooth enough

without loads of noise" 4oise is just the u and down

movement of orders !eing filled " The longer term the

chart is the more the chart smooths out not leaving

confusing atterns to have to digest"


14/19

)o we have two charts" The first is showing the 5 hr

level and sto location" 6es it could go higher and test the

to !ut the long red candles that droed from it makes it

very good to me"

Then we have a =2 min chart looking for the !est

entry we can find as close to that 5 hr sto as ossi!le" (e

can see 1 ossi!le entries one )unday night then the other

*onday morning" I have marked the oening rice on thechart I will use this as a trading level as we can see right

!elow it how rice droed away" I don.t hold a lot of

ower to )unday night levels staying within their

arameters as they are formed during low volume times

and we can get a drift in or out of a level that will sna


15/19

!ack in when larger orders start to enter the market"

But of course the !est entry was the highest , closest to

the 5hr sto" 'ight after )unday oen for most @ m

eastern ")" , a test of the %riday high suly level, These,

I call flis where rice flis over from one direction to the

other" Think of a swimmer aroaching the wall he twist

around getting in to osition then he ushes off towards

the finish line" The large move down is when he uses his

legs to ush off getting away from the wall"

)o we can see how using the faster chart we have

entered a trade risking less of our e+uity, !ut this doesn.t

mean we have to limit or ersective of our ossi!le gains"


16/19

)o let us look at how differently the take rofits would

look on the different charts" %irst we will look at the 5hr"

(e can see the clear difference that removing some of

the noise can rovide" This the =2 min chart"


17/19

)o what does this tell us" 4um!er one is that we

shouldn.t get tunnel vision, ust !ecause you may watch a

faster chart for !etter entries or more entries" To not use

all your charts as a comlete guide is a !it fool hardy" (e

after all are in this to make money" And we can leave a lot

on the ta!le !y not watching them all"

)o in summary we can clearly see how using a sto

limit as a different tye of tool can change our ersective

on it and make it more a friend than a foe" There is a so

much sychology a!out why we have self destructive!ehavior !ut we all see it all the time ersonally " The girls

that kee dating the mean men" &r the drug users" The

eole that can.t control their anger or emotional wrecks"

&ver eaters the list is huge " But they are all !ased on the

same ideas" (e !uild electrical connections in our !ody

that 3A$ to !e filled " )o it is hard to change these !ad

ha!its, !ut the good news is they can !e changed "

But the key is forcing ourselves do do things that are

uncomforta!le !ecause they are going against the

connections we have created" ust as when you +uit

smoking it gets easier and easier each day until finally you

!reak that cycle" )ure you still may have a desire to smoke

!ut now you can control it"

In most cases with our trading the difference !etween

screwing u and doing well is a millisecond of time so all

we need is a !it of control to think the right thought at the


18/19

right time" That is where a lan comes into it"

If you have thought out your trades ahead of time you

have already lanted the seed to do the right thing" Almost

all my '$ALL6 !ad trades come from shooting from the

hi not thinking things out and just juming in" A lot of

times I can find myself doing what I call trading against

myself" This is where I took a trade against my own !ias

for a air the !eing the alha male I can.t admit I am a

moron and get out" There is no lace in trading for ego

when it comes !etween you and your trades" The

comuter or charts could care less a!out us and ourignorant !ehavior"

The sooner a erson comes to gri with this fact the

faster they will move into the realm of ro trader" The

difference I see !etween rofessionals in any field and

amateurs isn that a!ility to do the right thing at the right

time" $ven a great athlete knows when to take a loss for

the team " &r a lawyer knows when to take a settlement ordoes he stick it out and loss more !y fighting a losing

!attle, or a contractor in a uside down jo!, might !e

!etter to ay any enalties and !ail out"

But what I am saying there isn.t a rofession I know

of that doesn.t !enefit from acceting a loss from time to

time and the rofessional is the eole that can see an

reali/e that"

In trading we have the !est chance to !ecome rich

than any other tye of endeavor !ecause it is one of the

few things that all our risk is ufront" But if we are just to

hard headed to use the !est tool we have we deserve to


19/19

just struggle and slowly drive ourselves insane" 3ow many

eole in any !usiness would love to have all their risk

ufront and locked in knowing they would never lose

more than they setu"

I don.t remem!er who it is !ut someone has that

attached to their avatar , C Insanity is doing the same

thing e-ecting a different outcome

)o learn to em!race your sto and see it for what it is

your guardian angel ut there !y you to rotect yourself

from yourself"

Then make the commitment to change your own !adha!its and think your entries thru !efore you lea" But

mainly think a!out your sto or your risk er trade" That

is the only thing really imortant"

A rofit target is a good thing !ut you can trade very

successfully with out one , !ut not a sto" )ome of my !est

trades haened !ecause I had a comuter or internet

issue and I couldn.t close a trade and when I got !ack uand running I had made more than if I had closed"

I am going to go ahead and convert this to a df and

try to add to it later "

Eheers Ken Lee

romancing the stop by kenneth lee

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