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In Trade Your Way to Financial Freedom, Van Tharp suggests a stop that is twice normal daily volatility in a addition to you long term stop. Is it necessary?

In Trade Your Way to Financial Freedom, Van Tharp suggests a stop that is twice normal daily volatility in a addition to you long term stop. Is it necessary?

What I think Van is saying is that we want to stay in a long term trend as long as possible. So, we have a fairly wide stop that gives our trade plenty of room.

However, some people become concerned if there is a very big one-day move. All Van is suggesting is that if you are concerned that this might be an early warning sign of a longer term problem, you may want to have such a stop.

I don't see any problem with this, if that is how your model of the market works.

For myself, I am strictly a trend trader, so I stay with the trade while the trend is in place. I have found that there are extreme moves from time to time. Sometimes they take me out of the trend, but often they do not. I have not found that they are not particularly predictive. Nevertheless, they do suggest that something may be going astray. The best trends unfold in an orderly way. I would be more concerned if the stock suffered this movement in the absence of a general market movement, because that suggests a specific problem rather than a general market-wide problem.

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