Hi David,

The risk of being on the wrong side of a trade is always a potential. We usually manifest this understanding by utilizing a protective stop loss. We also understand this manuever is not "fail safe", that there may be times when a market can and will make a move that leaps over our stop.

I'm sure before your thread runs it's course someone will suggest using options as a hedge. I don't like that strategy much for a lot of reasons ... complicating management, the cost of a meaningful hedge, etc, etc. It is a theoretical solution that losses a lot of its appeal when applied practically.

I think the most practical solution is to utilize the combined approaches Erich and I have been laying out here. Everyone knows I am in and out of probably 80% of my trades on a daily basis. My management is VERY tight. We hope that the majority of you will get "it". We understand there are people here who prefer Erich's more conventional approach. We understand there are folks here who prefer my tigher less traditional approach.

The "IT" is understanding that you can use BOTH. They are not mutually exclusive. Imagine us as "BI-POLAR" ... in a good way. You may slide from one extreme to the other utilizing exactly the same analysis thinking, depending on the particular situation. When playing markets that have demonstrated an ability to make the big surprise move ... Cattle, Hogs, Cocoa, Soybeans, Sugar ... then you construct the trade more in the image of my style. That means trading only the strongest of the strong S&R levels. IT means tying stops to the entry level S&R instead of the next lower or higher. It means calculating perioic RRR frequently as the trade unfolds.

Markets that tend to be not so volatile ... grains, currencies, Bonds, Eurodollars and other markets not so deep into there volatile seasonal waves ... you can use the "looser", less tight approach a la Erich.

This certainly won't guaranty you will escape the situation you portrayed but I think it will make it about as unlikely as you possibly can. When they do happen, and they will, you just take your lumps, hang on to your system, put it behind you and move on. This is the time when most abandon what they do and go back looking for the better mousetrap. THAT is totally the wrong thing to do. It is one of the aspects of the game we must contend with. There is no "blown stop" asbestos to insulate us.