Stocks & Commodities V. 22:4 (10-13, 86-87): Letters To S&C by Technical Analysis, Inc.
While I disagree with the importance placed on a
single tall white candlestick line in Stephen Bigalow’s article in the February 2004 issue (“Stop-Loss Procedures Made Easy”), I am glad he touched on the importance of using stops. In all of my training material, I stress that while candlesticks give many timing advantages, the trader must always take into account risk and reward. One of my Nison Trading Principles (my 13 most important trading concepts) is, “Even a perfect candle signal does not equal a good trade! One must always judge the potential trade’s risk-reward.”
Not understanding this is probably one of the most common mistakes made by those new to candlesticks.
By using a protective stop, we harness one of the major strengths of technical analysis. To wit: fostering a sound money management approach to trading. A stop means that there is a price at which the position is wrong. As the Japanese proverb says, “When you are
riding a dead horse, it is best to dismount.”
STEVE NISON, CMT