Tag—You’re OUT! (Another reason I’m anti stops)

I’ve written about my general dislike of stops in active trading (although I think they’re OK for day trading):

Let me add one further piece to the puzzle:

At the time of this snapshot, AAPL was trading at about 106.

Now, let’s say you wanted to set a STOP at 100.

According to the data above, there is a 67% chance that AAPL will hit 100 before the third Friday in April.

That’s a 2/3 chance that your stop will trigger.

On the other hand, there is only a 35% chance that AAPL will actually end up under 100 on the third Friday in April.

To me, that’s an indication that when AAPL hits 100, you should take another objective look before deciding whether or not to bail on the position.

In addition, I’m a firm believer that most traders would be more effective with defined-risk spread strategies that do not require stops at all, because the worst case scenario is already limited.  You simply make the trade and see how it turns out later…taking the psychological pressure off of the trade, as well as removing the “it TOUCHED a bad price so I’m out” volatility risk shown above.

Food for thought….happy to discuss in comments below.