I tend to be very conservative about overnight risk. I run much more risk intraday, generally, than I do overnight because I can't be certain whether my slippage estimate is accurate. Therefore, when I'm in doubt, I reduce into the close. You can estimate future gaps by measuring historical gaps and avoid the big, obvious events like earnings and US CPI release (for example).
So to answer your question: It's a totally different calculation that requires some insight into event risk, past gaps, and overall gap risk for the market as a whole.
Apr 5, 2023·edited Apr 5, 2023Liked by Brent Donnelly
Also if the trader operates on say 5 min charts, does the same method apply when setting stops e.g. step 1: figure out 1.5x the ATR of the 5 minute bars; step 2 now look at technical levels on the 5 min chart.
Hi Brent, could you expand more on 'Take profit' levels please? Please include what you do if price is very close to a 'take profit' level, would the stop be moved to say break even?
This is a super tricky question but generally my answer is YES. But when I move my stop, I try to use technical analysis to up my odds of surviving because getting stopped out on the higher stop loss all the time can be a big leak. That is, the new stop loss still needs to make sense from a market point of view. Don't just anchor on your entry point.
Great post! How do you factor in overnight risk? Using true average range?
I tend to be very conservative about overnight risk. I run much more risk intraday, generally, than I do overnight because I can't be certain whether my slippage estimate is accurate. Therefore, when I'm in doubt, I reduce into the close. You can estimate future gaps by measuring historical gaps and avoid the big, obvious events like earnings and US CPI release (for example).
So to answer your question: It's a totally different calculation that requires some insight into event risk, past gaps, and overall gap risk for the market as a whole.
I was wondering that as well.
Also if the trader operates on say 5 min charts, does the same method apply when setting stops e.g. step 1: figure out 1.5x the ATR of the 5 minute bars; step 2 now look at technical levels on the 5 min chart.
Thanks again
Hi Brent, could you expand more on 'Take profit' levels please? Please include what you do if price is very close to a 'take profit' level, would the stop be moved to say break even?
Many thanks
This is a super tricky question but generally my answer is YES. But when I move my stop, I try to use technical analysis to up my odds of surviving because getting stopped out on the higher stop loss all the time can be a big leak. That is, the new stop loss still needs to make sense from a market point of view. Don't just anchor on your entry point.
Thank you!
Could you post the excel formula/file you are using to do the histogram for the daily ranges? I can't seem to get mine to work properly.
Hi I use DATA ANALYSIS, HISTOGRAM in Excel. I find the histogram feature in the charts menu less useful and harder to customize.