Stops - the most difficult issue in trading, at least IMHO.
How tight your stops are, surely is dependant on how good entries are. Attached is a chart of this mornings Aussie API with an example of a very good entry where a very tight stop would have been appropriate. No - I didn't take the trade - I was out this morning. I don't believe that there is any dichotomy between tight stops and logical stops. Trades should only be taken where tight stops are appropriate.
The chart is a constant volume 50 contracts per bar. The black line on the price plot is VWAP. The second from top plot is a smoothed "market delta" - difference between trades executed at ask and at the bid. Third plot from top is smoothed "order book delta" - the ratio all contacted offered in the book (5 levels) to all contracts in the book (10 levels). The latter has a range 0 to 1.
Lower plot shows a couple of smoothed CCIs.
Notice the change in supply and demand during the bounce off the VWAP. Number of trades at the ask rises sharply as does the number of contracts offered. Remember that markets generally move to liquidity.
VWAP is an important S/R point for many SIFs. The CCIs are oversold, and for most of the preceeding period the high order book delta is indicative of a bullish market.
Put all of these together and it seems clear that a tight stop is very appropriate.
For anybody taking the drivel on the TRO threads seriously, compare and contrast this chart to the rubbish over on those threads.
