Dmitriy recently asked:
“Do you think that fixed stop-loss is better than a stop-loss which is based on market setup (stop below the low of the pullback or below support level)? If for instance, you trade ES or some stock every day, is it best to use a fixed stop-loss, say 3 points in any trade, or one which is based on the unique price pattern and hence requires a different size stop-loss every time (one trade may require 4 points, another 5 points)?”
This is a great question and one I’m glad he asked. Traders of many markets and of differing timeframes wonder about this and come up with mixed signals.
On the one hand, maybe they’ve read O’Neil say in How to Make Money in Stocks to limit one’s loss to 7-8%, which is a fixed amount that doesn’t vary from one trade to another. On the other hand, they realize that no two stocks are exactly alike (or futures or options or whatever instrument is in question). That kind of thinking would necessitate different sized stops depending upon what’s being traded.
My personal preference is to go with the latter line of thinking. I base my stops on current conditions and the pattern being traded. Some markets are faster than others, so they warrant a smaller position but wider stop. Others are slower and more steady, so they can be traded with larger size but a tighter stop. Personalities of stocks can greatly vary, so it’s difficult to apply a one-size-fits-all stop to every trade you make.
The bottom line is this: those who commit to learning  the technicals by studying price action, learning patterns, and personalities of stocks can utilize custom-fit stops and gain a ton of flexibility. By contrast, those who lack that commitment are stuck with using a set percentage which will be more than enough in some cases and not enough in others – very hit and miss.
Grow, learn, and improve – it’s the best investment you could possibly make in your trading.
Trade Like a Bandit!
Producer of The Bandit Broadcast