V.12:3 (125-128): Using Stops To Your Advantage by William I. Greenspan

Using Stops To Your Advantage by William I. Greenspan

Ever feel as though the locals on the floor of the exchange that you trade seem to know where you place your stop-loss orders? Professional traders know where stop-loss orders are, not because someone told them, but because the stops are always in the same place. Learn how a floor trader views the market, the price levels where stop orders will accumulate and how you can avoid being caught.

Is this scenario familiar? You're long Standard & Poor's 500 contracts with a realistic profit objective and your stop-loss order is in place near the bottom of the trading range. The market starts to break and falls right to where your stop-loss order is located. Your broker promptly sells out your position — and then the market goes right to your profit objective.

Do you suspect that your broker told his friends in the trading pit where the stop-loss orders are? Does it seem that you frequently buy the high or sell the low of a particular market move? Are you vacillating about the wisdom of using stop-loss orders at all? Do the brokers tell the local traders where the stops are?