# Stop losses - non negotiable?



## RocketGirl (12 June 2008)

I've been reading up on stop losses and the importance of them.  But I'm wondering how they work in the real world.  (ok.. that probably sounds dumb).  Say today, with just about everything on my watchlist falling.. Would you guys have cut your losses and sold?  Or do you allow for these 'bad days' and if you know your stock well enough, ignore the stop loss and hold onto it awaiting a rebound?  At what point is this following emotion.. or making a clean decision?


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## Timmy (12 June 2008)

My stop losses are non-negotiable.  I would never ignore my best friend


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## nomore4s (12 June 2008)

Depends alot on various things imo.

Timeframe - Intraday, EOD, Weekly
Type of trading - Swing, Breakout, Longer term trend following etc.

There are various types of stops you can use.
IE - Trailing stop, EOD stop etc.

Which one works best depends on how you trade, what timeframe you trade and what your trading objectives are.

For me today I only had 1 stop hit, depends on how tight you run your stops.

All a stop really is, is a point where you realise you are wrong or the trade is going against you and you can get out protecting your capital and/or profit, keeping you in the game.

Stops are a vital part of trading imo. Just look at some of the posts on the BNB/BBP thread to what can happen if stops aren't used, some of the posters were talking about getting out while prices were alot higher but held on in hope and not wanting to take a loss.

Edit - Good comment Timmy


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## Riley136 (12 June 2008)

Hello all, New to firum and finding my way around. Reading with interest stop losses.  
R


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## RocketGirl (13 June 2008)

Thanks. 

Timmy - obviously where I need to get to.  At the moment stop losses feel like a painful little sister rather than a best friend! 

nomore4s - I think I understand what you mean about it differing on the type of trading etc.  I haven't actually defined what sort of trader I am.. and on the quickest of quick searches.. I think swing trading describes me best.

But I fear I'm playing a very dangerous game.  I've been making money on cheap cheap stocks that have a spread of 1 or 2 cents.  I can see the potential for huge loss tho, because by the time a downward trend is established, as opposed to it just bouncing around a couple of cents.. it's a big % gone.

*sigh* I can see a complete overhaul of how I trade coming.  I seriously need to trade 'safer'.  Even tho I've had good success.. I'm not covering myself for the potential huge losses which could probably quickly erase my profits!

OK.. so stop losses should be non negotiable.. just need to learn where to place it so I'm confident that that's it.. time to pull out.

Thanks


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## nomore4s (13 June 2008)

RocketGirl said:


> Thanks.
> 
> Timmy - obviously where I need to get to.  At the moment stop losses feel like a painful little sister rather than a best friend!
> 
> ...




The way your trading atm while making money now can be a dangerous game imo. You only need 1 trade to gap against you or go into a trading halt and then gap down on bad news and you could lose your profits on many trades or worse all at once.

This is the idea behind the 2% rule, positon sizing, risk to reward etc, etc.

As a rough guide to how I trade - I trade on 1% risk of total capital and won't take a trade unless my target (my target is only a guide - not where I will definetly take profits) is 3x my risk although on shorter trades I will settle for 2.5x. (I'm not suggesting this is how you should trade - just how I trade but I trade totally different set ups to you)

Nick Radge has alot of wisdom on this matter, his book (Adaptive Analysis) is worth a read, you should be able to buy it from the ASF bookshop.

Good luck


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## strudy (13 June 2008)

A lot depends on what sort of trader you are. Short to medium term trades you would definitely use stop losses. But for long term I don't worry so much as the market is always fluctuating.

I always use a trailing stop loss to lock in my profits.

Hope that helps.


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## awg (13 June 2008)

just going thru this exercise myself, as a new trader.

for short term trades, in volatile stocks, am considering 2 basic methods, for short term trading.

one method based on 2*ATR to 3*ATR,  other on 10% trailing stop,

preferring to hang them of the intra-day high.

hopefully soon will have backtesting software on hand to test.

have found it to be quite a dilemna, as I trade intra-day within the account as well, used 3% initial stop, and 1:1.5 R/R for that.

havent had time to fully analyse the results...that can be confounding as well..a trade closed or opened can look good the next day, then bad a week later etc   (profit about 27% over 6 weeks so far)

did leave lots of profit on the table, but at least it was profit.

10% stop out hurts I can tell you, but it would have been worse if i hadnt.

hard work to trade volatile spec stocks on tight stops

good luck tony


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## njc.corp (13 June 2008)

Even though i am new but i have been on the sidelines for a while-

Wether  i am in it for the short or long time i won't leave home  without the stop-

i got put on a trading plan from Nick Radge & my dad and i cant tell u how relaxed and mind free i am knowing that if i am out i am out-simple as that-i just move on to something else-

but on the other hand everyone is different and others will use a tight stop even on a top stock like bhp,rio and others will take a bit more on the chin-

i do know that to be good at this game u find whatever u are looking for that suits u (well to me that is)

also look at it from this view if u get stopped out ----look for something else with whatever money u have lefted-beats finding a good stock with no capital

but like i said everyone is different-its just my view on how i operate---

Thanks--

Nick--(melb)


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## tech/a (13 June 2008)

Stops are set to mitigate risk.

Why set a stop if your going to over ride it at your own discretion.
Its obvious in this thread that correct position sizing from initial stop placement isnt clear.
Risk isnt increased,regardless of position placement of an initial stop.
Trailing stops to mitigate loss of profit are another topic---not one I thought concerning Rocket.

Timeframe has nothing to do with why you should or shouldn't use stops.

Stop losses are non negotiable IF you set one!
Regardless of what happens next hour,day,week or month.


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## cuttlefish (13 June 2008)

I trade predominately on fundamentals.  If the fundamentals change in a way that changes my fundamental view of the stock then I'll exit fairly aggressively even if it means hitting the price down a little.

I also have money management stops and technical stops.  I often do take a partial exit for these particularly if I'm still strongly bullish on the fundamentals.  This will sometimes bring me out of the stock at different levels causing a reduction in the holding size.  Sometimes I'll then re-enter again on technicals and/or fundamentals.

If the position is large vs the stocks liquidity then I try to feed it out over hours or days if I think the price will hold up - it depends a bit on how strongly my fundamental or technical view has changed and also the size of the trade/potential loss  (if I see the potential for it to become a large loss quickly I'll get out more aggressively to limit the size of the loss).

Once you get used to taking stops it is quite freeing.

Taking a stop loss gives you money in exchange for worry - maybe not as much as you had at the start of the trade but like ripping off a bandaid the pain goes away pretty quickly - but the pain can mount up if you ignore the stop and let the wound fester (apologies for the gory analogy lol).  It gives you the optimism to look for your next position. More often than not you will also have the opportunity to re-enter the stock at a lower price than where you took the stop.

The only other thing to be wary of is intraday stop farming exercises - though sometimes distinguishing between one and the other can be a bit tricky.  Taking a partial stop is one option if you suspect you're seeing an intraday flushing exercise - but if its not a flushing exercise but an actual price fall then you might wear more pain on the remaining parts.


The thing to remember about a falling price is that it develops a momentum of its own that is independant of the fundamentals and is related to the psychology around the holdings of all those that are waiting patiently for the price to recover, or that have entered to get a 'bargain', or doubled up or averaged down etc. and this puts pressure on any subsequent price rises and can emphasis and exaggerate the size and duration of the fall or the length of time for the recovery (if there is going to be a recovery of course - not all stocks recover).


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## Trembling Hand (13 June 2008)

cuttlefish said:


> Once you get used to taking stops it is quite freeing.




Nice post cuttlefish.

Trading is a business. All business have expenses. Losses are an unavoidable trading expense. *Trading is the only business out there where YOU get to set the cost of your expenses. *Unique and very favorable but fools never see this because they are not in the trading business they are gambling.

If you carn't take your stops quickly and as planed you have no hope and are simply playing Russian Roulette.


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## brettc4 (13 June 2008)

The correct use of stops is something of interest, even if I do not actually practice them.

I do have a question about Stop loss when trading based on EOD Data.
If the EOD close is below the stop loss, it should be sold the next morning. If the stock opens above your stop, do you still sell and thin yourself lucky the slippage went your way, or hold on?

In terms of slippage, do you need to take that into account with position sizing.  If my 1% rule says I can buy 10,000 amount, should I reduce that amount slightly to account for slippage?

Cheers,
Brett


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## wildkactus (13 June 2008)

brettc4 said:


> I do have a question about Stop loss when trading based on EOD Data.
> If the EOD close is below the stop loss, it should be sold the next morning. If the stock opens above your stop, do you still sell and thin yourself lucky the slippage went your way, or hold on?




Brett,
I trade EOD and for me I would have been exited, as I place my stop loss orders into my trading system straight away after I have be filled. 
So to me this exit means that I was wrong with my judgment on the trade. Even if the next day it opens higher it may still close a lot lower.

To me if you use stops, they are part of your plan so they have to be followed to the letter, if not you are not following your plan.


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## RocketGirl (13 June 2008)

Thanks heaps everyone.  I especially like the explanation of it being a business and being in control of the expenses. I can relate to this, having worked for an accountant for nearly 10 years, and running small businesses from home 

Well, the time finally came.. we've had a couple of stocks plummet.  And being what they are, it doesn't take much for the loss to grow big. LOL *sigh*.

I also liked the bandaid analogy - as gross as it was   Coz right now, I'd love to just have some money back, to put to work somewhere else.  So yeah.. just gotta get my head around accepting small losses in order to free up my money to keep trading.

We're probably gonna sit it out for a bit (and until we get some of that money back LOL) and will work on some exit strategies, and research some more expensive stocks which will allow tighter stops.

Thank you!


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## MichaelD (13 June 2008)

Most has been covered here already, but some absolutes in regards to stops and trading;

1. If you do not know in advance exactly when you will exit a trade you must not enter it. The entry is easy, but the exit is where you make your money.

2. Stops are only part of the equation - they need to be coupled with money management.

3. Within limits, a wider stop works better than a closer stop. This is contrary to "common sense" or "gut feel".

4. Taking a small loss means that you are one step closer to taking a big profit.


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## diliff (14 June 2008)

MichaelD said:


> Most has been covered here already, but some absolutes in regards to stops and trading;
> 
> 1. If you do not know in advance exactly when you will exit a trade you must not enter it. The entry is easy, but the exit is where you make your money.
> 
> ...





I understand what you're saying, but I've always thought it seems a bit premature to set an exit point in a trade without seeing exactly what the price will do. It is all well and good to have a guestimate of where you think the stock is capable of going within a time period, but if it doesn't do what you expect, shouldn't you wait and see? I'm not talking about letting a loss continue in the hope it improves by the way, I mean if the stock is doing better than expected.

Say you invest in a stock at $1 a share and estimate it will make it to $1.30 within 3 months.  After 3 months, it has hit $1.50 and shows no sign of stopping. Do you sell, having more than hit your estimate, or do you let it go a bit longer, to see where it tops? Obviously there is no simple answer, as it may top at 1.52 and then immediately fall to 1.40 again, in which case you WOULD have been better off selling at $1.50. But as long as you have your finger on the sell trigger, surely it is better to continue to look for the ceiling than to sell at the estimated price based on your best guess 3 months ago.

So while it is good to have an expectation of where the stock may go, I don't think its a good idea to immediately sell at the point. Setting stop losses are a different story though. An appropriately set stop loss being triggered means you were dead wrong, not right.


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## MRC & Co (14 June 2008)

I think, MickyD is talking about initial stops, not profit targets.

I agree with HowardBandy personally, if looking for short-term trades (used predominately in a choppy market), targets are important. 

If looking to catch a larger trend, then letting price action stop you out through some form of trailing stop is best.


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## cuttlefish (14 June 2008)

I think the point is know what your exit strategy is going to be in advance.  e.g. 5% initial stop convert to 10% trailing stop once profit target of $x is reached - so it doesn't need to be a fixed price. (and if you use fundamentals as I do it may be related to events that affect the fundamentals as well).


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## ninjatrader (14 June 2008)

yes if it helps you to limit your losses

no if it prevents you from making a profit

once you set your trading plan and your stop loss and you exit because your stop loss has been triggered you should stick to that and sit on the sidelines for a while

if in 1 or 2 months the stock recovers and achieves a profit / hits your target price then you should reconsider the process you are using to calculate that stop loss

if on the other hand in 1 or 2 months the stock continues to fall then it just confirms that you made the right choice

definitely helps to have a routine for when you make a loss so you can learn from your mistakes

i trade mainly speculative stocks so i try to think about where the "insiders" are buying in and what they would use as their stop loss and then i set my stop loss accordingly


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## RocketGirl (24 June 2008)

hmm... hypothetical.  Still reading up on commsec's conditional orders.. 

If your stoploss is triggered.. I take it an order is placed in the queue for you.  Obviously the sale isn't guaranteed at your price, because the price can fall before it reaches you..  how far do you chase the loss if everytime you change your order the price drops again? Do you ever reach a point where the loss hurts that bit too much, and you figure just to hang on to it?  When does it become a panic sell just coz you're watching the price plummeting?  Can you not then apply the theory that a fast fall in price like that is likely to rebound at some point?


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## tech/a (24 June 2008)

If you place a stop order if price reaches that level your position is sold at market immediately---if another 150 people have stops set at that level and there are insufficient buyers at that level all buyers under that level are taken out to fill all stop orders. Have a look at the kangaroo tail on CEY and you'll know what I mean---last week.

This is called slippage---something that I have learnt to live with.
You get cunning setting stop orders a few points above the obvious.


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## RocketGirl (24 June 2008)

Ooh ah.. really?  I got the impression it was just put in the queue!  Yikes - I don't like at market LOL.  Knowing me I'd get the tail end .. bah.


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## MichaelD (24 June 2008)

RocketGirl said:


> If your stoploss is triggered.. I take it an order is placed in the queue for you.  Obviously the sale isn't guaranteed at your price, because the price can fall before it reaches you..  how far do you chase the loss if everytime you change your order the price drops again? Do you ever reach a point where the loss hurts that bit too much, and you figure just to hang on to it?  When does it become a panic sell just coz you're watching the price plummeting?  Can you not then apply the theory that a fast fall in price like that is likely to rebound at some point?




1. For long term systems an intraday stop hurts system performance versus a stop triggered on end of day prices.

2. When a conditional stop is triggered (eg CommSec), your order is placed in the market AT THE LIMIT YOU SET for the sell order. A big gap down can miss the price leaving your position open. You CANNOT use a conditional stop to put an order in AT MARKET.

eg. Set a conditional stop loss to trigger at 5.00. When it triggers, your instruction is to put the stock on the market AT LIMIT 4.90. Your order may or may not be filled.

3. When a stock hits its stop loss this simply means that the position has not behaved in the way you anticipated when you entered the position and so you are discarding it and moving on to the next one. Any emotion you attach to this process is yours alone.

4. Catching falling knives is not recommended if you wish to preserve your wealth. How far could ABS fall? How far could BNB fall? How far could MFT fall? "I never met a large loss that wasn't a small loss to begin with" - trading truism.


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## stargazer (24 June 2008)

Hi



> Michael D
> Set a conditional stop loss to trigger at 5.00. When it triggers, your instruction is to put the stock on the market AT LIMIT 4.90. Your order may or may not be filled.




Hi i am with Etrade and they have a range of options with conditional orders etc.

My question is if you set it up as you have indicated and say overnight there was bad news and the market opened down.

So the next morning this stock opens at say 4.60 what happens?

Is it sold or not?

*If not * and  you were not around and it went back up to 4.90 would it then be sold on the way through because it has touched 4.90.

Cheers
SG


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## RocketGirl (24 June 2008)

MichaelD said:


> 2. When a conditional stop is triggered (eg CommSec), your order is placed in the market AT THE LIMIT YOU SET for the sell order. A big gap down can miss the price leaving your position open. You CANNOT use a conditional stop to put an order in AT MARKET.
> 
> eg. Set a conditional stop loss to trigger at 5.00. When it triggers, your instruction is to put the stock on the market AT LIMIT 4.90. Your order may or may not be filled.




Hmm.. yes, this is how I had understood it.  Now I'm confused - is a conditional stop different to other stops?



> 4. Catching falling knives is not recommended if you wish to preserve your wealth. How far could ABS fall? How far could BNB fall? How far could MFT fall? "I never met a large loss that wasn't a small loss to begin with" - trading truism.




Too true.  So are you saying you just pull out where you can regardless?  It kinda feels like you're joining in the panic selling if you chase the price down trying to sell.. altho I spose you could throw in a market sell as opposed to joining queues, but I don't like them.

This is where my original question sort of comes in.. if you can see that it's a market reaction to something as opposed to something fundamental.. does this affect you executing your stoploss.  I dunno.. I guess it's something I'm going to have to get a feel for, and probably learn the hard way LOL.



			
				stargazer said:
			
		

> If not and you were not around and it went back up to 4.90 would it then be sold on the way through because it has touched 4.90.




I've wondered that too.  Does setting the condition as a falling sell make the difference?  So if it rises to that price it won't trigger it?  Altho, it wouldn't trigger until it reached the limit which was set at 5.00.  

Argh.. I dunno!  LOL.


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## Broadside (24 June 2008)

MichaelD said:


> Most has been covered here already, but some absolutes in regards to stops and trading;
> 
> 1. If you do not know in advance exactly when you will exit a trade you must not enter it. The entry is easy, but the exit is where you make your money.




This aspect doesn't make sense to me, how can you set an exit point in a spec where news is unfolding before you....your exit point has to be dynamic depending on the news (I am not talking about a stop, I am talking about an exit point in profit...is that what you are referring to in point 1?

PS Doesn't even need to be a speccie...take BHP...economic conditions changed, commodity price rises you name it.  I enter it at $45 today and need an exit point in mind?  how about never?


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## AlterEgo (24 June 2008)

stargazer said:


> My question is if you set it up as you have indicated and say overnight there was bad news and the market opened down.
> 
> So the next morning this stock opens at say 4.60 what happens?
> 
> Is it sold or not?




No, it won't be.



stargazer said:


> *If not * and  you were not around and it went back up to 4.90 would it then be sold on the way through because it has touched 4.90.




Yes, if it gets to you in the queue at 4.90. ie. there may be someone else ahead of you in the queue at 4.90. But if it went up to 4.91, then yes you'd definitely have sold it.


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## AlterEgo (24 June 2008)

Broadside said:


> This aspect doesn't make sense to me, how can you set an exit point in a spec where news is unfolding before you....your exit point has to be dynamic depending on the news (I am not talking about a stop, I am talking about an exit point in profit...is that what you are referring to in point 1?
> 
> PS Doesn't even need to be a speccie...take BHP...economic conditions changed, commodity price rises you name it.  I enter it at $45 today and need an exit point in mind?  how about never?




I believe he was probably referring to an initial stop.


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## MRC & Co (24 June 2008)

RocketGirl said:


> Hmm.. yes, this is how I had understood it.  Now I'm confused - is a conditional stop different to other stops?
> 
> 
> 
> ...




You buy at $10, you want to sell if the price hits $9 or below, you use a stop.  Vice-versa (if you go short at $10 and you want to buy (cover your short, same as a stop loss on a short) at $11, use a stop order (but it would be a buy stop, not a sell stop).

You buy at $10, you want to sell if price hits $9, but don't want to sell if it gaps below that and so you set a stop limit, stop at $9, limit at $8.50 for example.  If it gaps below $8.50, you will not sell because it is below your stop limit, personally, these are RISKY business to use, and I have NEVER used one. 

I only use a stop limit when I initiate a position, never when covering (getting out of the position).

If you buy at $10 and want to sell if it hits $15 and take profits (profit target), use a sell limit order.  

The basic order types you have to get your head around are stop, limit, stop limit.  

If you are using a long-term trend following system, you would want an end of day stop, as MichaelD points out above.

Pull out regardless, and panic sell?  YES, this is T/A, you are going along with the crowd, trying to predict their behaviour.  If you are investing, based on fundamentals, no, you probably would not sell as price falls, unless the fundamentals have changed.  You are using the crowd behaviour (T/A) to buy in cheaper.


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## Broadside (24 June 2008)

AlterEgo said:


> I believe he was probably referring to an initial stop.




that would make more sense but the wording was ambiguous


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## MRC & Co (24 June 2008)

Broadside said:


> This aspect doesn't make sense to me, how can you set an exit point in a spec where news is unfolding before you....your exit point has to be dynamic depending on the news (I am not talking about a stop, I am talking about an exit point in profit...is that what you are referring to in point 1?
> 
> PS Doesn't even need to be a speccie...take BHP...economic conditions changed, commodity price rises you name it.  I enter it at $45 today and need an exit point in mind?  how about never?




You are talking about fundamentals (F/A) or otherwise known as investing.

We are talking about trading (T/A), you use resistance, support or simply trail it with ATR (average true range), time etc.


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## Broadside (24 June 2008)

MRC & Co said:


> You are talking about fundamentals (F/A) or otherwise known as investing.
> 
> We are talking about trading (T/A), you use resistance, support or simply trail it with ATR (average true range), time etc.




Okay, I can certainly see the value of stop losses for a trader.  I am not sold on stop losses for longer term investors in specs since there are often attempts to shake out a holding when a stock is on the way up.  Sure if it goes sour after entry and in the negative it can be wise to exit and look elsewhere or wait for an uptrend but the thread title is "non negotiable"...from my perspective, they're certainly negotiable.  Cheers.


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## nizar (24 June 2008)

MichaelD said:


> "I never met a large loss that wasn't a small loss to begin with"




True story.


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## MRC & Co (24 June 2008)

Broadside said:


> Okay, I can certainly see the value of stop losses for a trader.  I am not sold on stop losses for longer term investors in specs since there are often attempts to shake out a holding when a stock is on the way up.  Sure if it goes sour after entry and in the negative it can be wise to exit and look elsewhere or wait for an uptrend but the thread title is "non negotiable"...from my perspective, they're certainly negotiable.  Cheers.




Of course, this is why some use ATR based on shorter term MAs (say a 10 period for example).  It captures recent volatility and a 3 period ATR could well and truly avoid a test.

A shake out, nothing you can do about that.  Has been happening in commodities quiet often recently.  But it is the results over large sums of trades.  If you set reasonably (there is a vague word and upto the individual to decide) tight stops, you can cut these shake-outs short.  

If the stock falls far, and you hold, what is to say it won't liquidate (one of mine did and it was 100% of my capital on my first 'investment)?  Or do nothing for 10 years and erode your capital in the form of both inflation and opportunity cost.

I mix the two, I have a portion of my portfolio dedicated to smaller companies for longer-term growth potential and until the fundamentals of that company change,  I will ride out the losses.  I currently have 3 and they are all down, 2 of them have taken quiet a battering!  But the fundamentals remain robust IMO.

The majority of my portfolio is dedicated to trading.  Not so sure an investor could make great money in this environment.

Cheers


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## cuttlefish (24 June 2008)

Broadside said:
			
		

> This aspect doesn't make sense to me, how can you set an exit point in a spec where news is unfolding before you....your exit point has to be dynamic depending on the news (I am not talking about a stop, I am talking about an exit point in profit...is that what you are referring to in point 1?
> 
> PS Doesn't even need to be a speccie...take BHP...economic conditions changed, commodity price rises you name it. I enter it at $45 today and need an exit point in mind? how about never?




Broadside - see my posts earlier in the thread for more detail - my interpretation of MichaelD's comments is 'never enter a trade/position without knowing what criteria you will use for an exit'.  This might not be a specific price it could be a trailing stop - or it might also be some fundamental criteria (e.g. operating profit falling below expectations, or production head grades being lower than expected, or commodity prices falling below a certain level).

I am primarily driven by fundamentals but also use technicals and money management to manage position sizes and exits from trades.


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## cuttlefish (24 June 2008)

stargazer said:


> My question is if you set it up as you have indicated and say overnight there was bad news and the market opened down.
> 
> So the next morning this stock opens at say 4.60 what happens?
> 
> ...





Any trade that occurs below the stop loss price (i.e. $5.00), regardless of when it occurs and regardless of whether it involved a gap down to that level, will trigger the stoploss condition and cause the order to be placed in the queue at the limit price ($4.90).

So in the situation you describe - yes the stoploss condition will be triggered and an order placed in the queue at 4.90 - and if the price trades back up to that level and a hits the order it will get executed.


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## cuttlefish (24 June 2008)

RocketGirl said:


> hmm... hypothetical.  Still reading up on commsec's conditional orders..
> 
> If your stoploss is triggered.. I take it an order is placed in the queue for you.  Obviously the sale isn't guaranteed at your price, because the price can fall before it reaches you..  how far do you chase the loss if everytime you change your order the price drops again? Do you ever reach a point where the loss hurts that bit too much, and you figure just to hang on to it?  When does it become a panic sell just coz you're watching the price plummeting?  Can you not then apply the theory that a fast fall in price like that is likely to rebound at some point?




I've found this a problem with conditional orders because they get triggered on intraday movements - so its worth noting MichaelD's comment about using end of day stops vs intraday stops for longer term positions.   

One option depending on what position sizes you use is to offload half and then give it 15 minutes or so to recover from the 'stop farming' exercise - but if you call it wrongly then of course it can plummet even further and you'll lose even more when you offload the second half.   I guess this is really a point where it can become a bit discretionary depending on your technical and/or fundamental view on the stock and also on the volume/price/trading behaviour of the day.   The day you wait for the bounce it will continue to plummet.  The day you sell into the downward spike it will bounce back and you'll have sold at the bottom. Its a catch 22.


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## stargazer (25 June 2008)

Hi all

Thanks for your replies and explanations:

What i see confused me is this:

You read things like set a stop loss:
eg. Buy at $1 stop loss at say 90c  OR set a limit of when to sell eg Buy $1 sell at $1.10.  This i can understand and is straight forward.

When i went to E trade there are no stop loss options but they called them CONDITIONAL ORDERS 

You have a *trigger price *then a *sell price *and also a *limit price * and *if less than or equal to price *This is just the basic one, then you have more options* eg *only sell if the volume is a certain level etc etc.

I just want to be sure that if i buy at say $1 and want it sold at 0.95c via a stop loss thats what it sells for.  


Thats where i found it confusing but getting there..lol


cheers
SG


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## MichaelD (25 June 2008)

Points of clarification:

A STOP LOSS is the price point at which you decide that your analysis was incorrect and that you must exit your position. This could be defined as the CLOSE price or an intraday price.

HOW you exit the position can vary. You may choose to use your broker's conditional orders to assist you in getting out of your position immediately. You may choose to make mental note that your stop loss has been breached and then exit the position according to your plan. In my case, for my long term trend following system I check the CLOSE prices at the end of each day and if the stop loss has been breached I will close the positions the next day.

Also, when I said that "If you do not know in advance exactly when you will exit a trade you must not enter it" this meant that you had a plan for managing your trade after opening it.


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## RocketGirl (25 June 2008)

stargazer - I'm still a bit confused re conditional orders too.  

You set the trigger price $0.95, and a limit price $0.90.  They say they will sell it for no less than that limit price.  Does that mean it may sell for more than $0.90?  If so, how??  if the trigger creates an order at $0.90 that would be it wouldn't it?  Yet they imply that they will try to sell it once the condition is triggered but at no less than the limit.


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## cuttlefish (25 June 2008)

RocketGirl yes it can and probably will sell for more than .90 if the bid queue is still sitting above .90 when the order gets triggered (which it typically will be if the stop loss was set at .95).


e.g.
Stock XYZ
Last Traded .95

Bids    ======   Offers
1000 .94     |    .95  2000
2000 .93     |   .96  5000 
5000 .92     |  .98  6000


If you had a .95c stoploss to sell 2000 shares at limit price .90 and the above was the state of the queue's when your ordered was triggered then you would get 1000 sold at .94 and 1000 sold at .93  so an average price of .935.


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## RocketGirl (25 June 2008)

But that would be like an 'at market' order wouldn't it?  And we're being told here that it's not 'at market', it's put in the queue.


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## cuttlefish (25 June 2008)

I'm not too sure how to explain this much further except to say that a conditional order, once the trigger condition is met, becomes a normal limit order just like any other limit order you would place in the market manually, with no special bells or whistles attached.

The ordering in the sell queue is based on time and price priority.  Thus if the lowest order currently in the offer queue is .95 cents and you have a limit order that is .90c then your order goes to the front of the queue because it is of a lower price than the current order at the front of the sell queue and thus gets priority.  Now because your limit is .90c and there are already bidders there (in my example above) that exceed this price it means your order also gets filled immediately by the first 2000 bidders in the queue that match or exceed your sell price.

On the other hand if  it was a different scenario and there was already an order for .90c in the sell queue when your condition got triggered, then your order would get placed behind it in the queue because the other order has time priority (i.e. it was placed before yours).


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## AlterEgo (25 June 2008)

RocketGirl said:


> But that would be like an 'at market' order wouldn't it?  And we're being told here that it's not 'at market', it's put in the queue.




Yes, it kind of acts like an 'at market' order, but it's not actually an 'at market' order. An 'at market' order will sell down to whatever price it needs to get the order filled - depending on what orders are in the queue at the time, that may put the price down much below the 90c. In the example you gave it will get filled at whatever the highest orders are in the bid queue (down to 90c) until it gets filled, or if there are no orders in the queue between 90c -95c, your order will just sit in the ask queue at 90c. Cuttlefish's example above is correct.


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## AlterEgo (25 June 2008)

Yep, it just submits a normal 'limit' order at 90c. If the market depth looked like the example Cuttlefish gave above, and you placed a normal 'limit' order at 90c, it would get filled at an average price of 93.5c


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## RocketGirl (25 June 2008)

*ping!*  I think I get it! LOL! Thank you.  Takes a while for some things to process hehe. That made complete sense cuttlefish


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## cuttlefish (25 June 2008)

RocketGirl said:


> *ping!*  I think I get it! LOL! Thank you.  Takes a while for some things to process hehe. That made complete sense cuttlefish




woohoo success! glad to hear it.


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## white_goodman (25 June 2008)

if i was to set a trigger and a limit both at 95c , does that mean it could only be sold for 95c? is that possible?


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## white_goodman (25 June 2008)

also do you advise stop loss based upon a percentage of total capital/portfolio or percentage of that particular stock?


im thinking the first...?


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## AlterEgo (25 June 2008)

white_goodman said:


> if i was to set a trigger and a limit both at 95c , does that mean it could only be sold for 95c? is that possible?




In that example it would only be sold at 95c IF there was enough volume in market depth at 95c, if not then you may only get a portion of your holding sold or none at all, unless the market comes back up to your price.


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## AlterEgo (25 June 2008)

white_goodman said:


> also do you advise stop loss based upon a percentage of total capital/portfolio or percentage of that particular stock?
> 
> 
> im thinking the first...?




Neither. I'd set my POSITION SIZE (not stop-loss) based on a percentage of total capital at risk at a given stop-loss point. Stop-loss would be determined by your trading strategy.


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## AlterEgo (25 June 2008)

Maybe I should elaborate a bit more on that point...

Say for example you were intending to enter a trade at 1.00. Based on whatever system you are using you would first determine a suitable place for the stop-loss – maybe below a trendline, place of support, moving average, ATR, etc, - whatever sort of system works for you and your trading timeframe. Say for example that you determined from this that the ideal place to set the stop-loss was .90, you have 50K capital and you are setting position size to 1% total capital risk...

1% of $50,000 = $500 max. that you want to risk
You are risking 10c per share, so you can therefore buy 5,000 shares and risk only 1% of total capital.


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## white_goodman (25 June 2008)

AlterEgo said:


> In that example it would only be sold at 95c IF there was enough volume in market depth at 95c, if not then you may only get a portion of your holding sold or none at all, unless the market comes back up to your price.




say i do set the trigger and limit at 95c and ive got 100 shares.... say there was a buy order at 95c for 99 shares...hence 99 shares of mine were sold and i incur brokerage....

does that mean to sell that extra 1 share i incur brokerage again when it comes back up to 95c?


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## stargazer (25 June 2008)

Hi all

Very good explanations and getting very close to the PING my last question...

Taken from E trade:
Set the conditional order BASIC
Trigger Price:            
*the price the stock must reach to trigger the conditional order*

*Greater than or equal to
Less than or equal to*

*Limit* (Optional):

*Volume* (Optional):

Does the limit need to be used to ensure it doesn't get sold at a price you don't agree with?

Cheers
SG


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## AlterEgo (25 June 2008)

white_goodman said:


> say i do set the trigger and limit at 95c and ive got 100 shares.... say there was a buy order at 95c for 99 shares...hence 99 shares of mine were sold and i incur brokerage....
> 
> does that mean to sell that extra 1 share i incur brokerage again when it comes back up to 95c?




No, but if the last share didn't sell that same day, and sold the next day, then depending on your broker's fee structure you may get hit with another brokerage fee the next day when the final share gets sold. Your broker's PDS should set out their fee structure.


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## AlterEgo (25 June 2008)

stargazer said:


> Hi all
> 
> Very good explanations and getting very close to the PING my last question...
> 
> ...




I'm not familiar with ETrade. I'm used to using these type of orders in webIRESS. But yes, I'd say that'd be correct. It won't sell for less than that price,.... but may not get sold at all.


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## white_goodman (26 June 2008)

AlterEgo said:


> No, but if the last share didn't sell that same day, and sold the next day, then depending on your broker's fee structure you may get hit with another brokerage fee the next day when the final share gets sold. Your broker's PDS should set out their fee structure.




its commsec so i dunno, maby other people do... i dont think it really will affect me in the short term anyways im generally dealing with the smaller volumes


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## RocketGirl (26 June 2008)

Commsec doesn't charge extra brokerage for a split order like that.  I've had it filled over 2 days before and the 2nd contract note doesn't have any brokerage on it.


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## stargazer (26 June 2008)

Hi all

Thanks for the replies and explanations i reckon  thats a  PING :jump::band

Cheers
SG


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