Question on Limits, Stops and Support

A good question via email:

Guy, can you help with this scenario.

I am long at what I see is a support level after a pull back. I have averaged in and have a stop just below.

Tnote stops


After a pullback, I was long at support levels 126-040, 126-045 and 126-050, averaging 126-045. I had a stop at 126-150.

However this time (and others), after my stop loss was executed, the market tends to reverse back.

I have been caught in this situation many times.

Please advise:
1) Do I have my support levels incorrect?

2) Should I widen my stop loss price?

3) Should I averaging at wider intervals, say 126-02, 126-04 and 126-06?

I think points 1, 2 and 3 are probably correct here.

Well point 1 is definitely spot on. If the market did not find support there, then it was not a support level this time around.

Points 2 and 3 – the answer is probably yes, but we must take into account time of day and how the market was trading at the time. Were related markets moving? Were we near highs or lows? Were we near the open or the close (including the floor open/close)? Was it a data day?

All these things help determine volatility and whether support/resistance will hold. It will give us an idea on how wide we should place our stacked orders and where to put stops. It will also tells us if we should be fading or going with a move.

As I once heard an old trader say: “you just gotta stare at it – and if you stare at it long enough you might catch part of the next move”.