# Stop loss/profit?



## CoffeeKing (4 May 2008)

Yep a newbie... and learning as I go...but confusedas to what is meant by stop loss or stop profit in the thread "Ive done all the dumb things - suggestions"

correct me if I'm wrong but if you buy a share at $20 then put in a stop loss for $19.50 straight away after buying does this mean your share is sold at $19.50 instead of say $19.00 if the share kept going down?
Surely if you do the homework on the share and use a stop loss does that mean you think the share will go down, and if you think the share will go down, why get it in the first place?

Can anyone tell me, using Etrade, how you would put a stop loss in (just incase I need to know) and once a stop loss is in, if the share rises how do you remove the stop loss to sell at a higher price ( can it be done? ) as I have no idea's about stop losses or stop profits


----------



## jama_kj (4 May 2008)

*Re: Stop loss / profit ???*



CoffeeKing said:


> Yep a newbie... and learning as I go...but confusedas to what is meant by stop loss or stop profit in the thread "Ive done all the dumb things - suggestions"
> 
> correct me if I'm wrong but if you buy a share at $20 then put in a stop loss for $19.50 straight away after buying does this mean your share is sold at $19.50 instead of say $19.00 if the share kept going down?
> Surely if you do the homework on the share and use a stop loss does that mean you think the share will go down, and if you think the share will go down, why get it in the first place?
> ...





hey i'll try to answer ur qu's

the reason you put in stop los is for precautionary reasons and to limit your loss in case of a downturn. I mean of course when buying a share you are basing your decision on the belief that it will rise, but shares don'talways go up in straight lines they are somewhat volitile (esp in the current period we're in) so putting in a stop loss protects you from a sudden unexpected fall that may be caused by general market sentiment (ie. fears of recession, etc.) or by an unexpected release of news that brings the share down (a la centro, octavier/allco, ABC learning, etc.). 

Now if you buy at $20 it will sell at $19.50 if it hits that amount on the way down. If, however, the share closes on $20 on monday and then opens the next day at $19 then it will not sell at $19.5 and will only be able to sell at $19 (the next available selling price). 

As for etrade specifics i am unsure so hopefully someone else can answer that. you will be able to remove a stop if at any time you feel it is no longer necessary and you can sell at whatever price you want. the stop loss is essentially a 'pre-order' which asks the broker to sell at a particular price if it happens to reach it so as to limit any losses.


Hope this helps


----------



## tcoates (5 May 2008)

On E-trade.... once you are logged in, look  under conditional order (under Trading). 

There are a few different implementations in place here, each having different costs. 

Each implementation also has "learn more" function guiding you through the process.

Tim


----------



## Trembling Hand (5 May 2008)

CoffeeKing said:


> Surely if you do the homework on the share and use a stop loss does that mean you think the share will go down, and if you think the share will go down, why get it in the first place?




Actually i think you will find most traders KNOW that the next trade has a 50/50 chance of losing them money (give or take). That's why they MANAGE their trades that are losers by setting stops then moving on to the next trade.

This game isn't about being right its about knowing quickly when you are wrong.


----------



## nioka (5 May 2008)

Trembling Hand said:


> Actually i think you will find most traders KNOW that the next trade has a 50/50 chance of losing them money (give or take). That's why they MANAGE their trades that are losers by setting stops then moving on to the next trade.
> 
> This game isn't about being right its about knowing quickly when you are wrong.




 Anyone going into a trade expecting only a 50/50 chance of being successful may as well just play two up. To enter a trade you must have the odds well and truly in your favour. Anything under an 80% chance of success is gambling.. Well that's my way of looking at things.


----------



## Trembling Hand (5 May 2008)

nioka said:


> Anyone going into a trade expecting only a 50/50 chance of being successful may as well just play two up. To enter a trade you must have the odds well and truly in your favour. Anything under an 80% chance of success is gambling.. Well that's my way of looking at things.




Rubbish!!

What happens if you have a 50 % win rate but your wins are 4 times your losers. You will end up being a very rich gambler!!!!!

My win rate over the last 3 years is 50% and I have made a stack of $$. My win rate for the 5 years before that was much higher and I lost many many thousands.

Odds in your favour don't just come down to win rate or being right. If you concentrate on that you are missing the point. its R:R that counts


----------



## nioka (5 May 2008)

Trembling Hand said:


> Rubbish!!
> 
> What happens if you have a 50 % win rate but your wins are 4 times your losers. You will end up being a very rich gambler!!!!!
> 
> ...




That is why only 5% of traders are successful. 50% break even and 45% are losers. 95% of normal investors are successful. 
Congratulations, you must be in the 5%. However you needed the other 45% to contribute to your success.


----------



## MichaelD (5 May 2008)

nioka said:


> Anyone going into a trade expecting only a 50/50 chance of being successful may as well just play two up. To enter a trade you must have the odds well and truly in your favour. Anything under an 80% chance of success is gambling.. Well that's my way of looking at things.






nioka said:


> That is why only 5% of traders are successful. 50% break even and 45% are losers. 95% of normal investors are successful.
> Congratulations, you must be in the 5%. However you needed the other 45% to contribute to your success.




Should we bite or should we not bite.

What the heck...bite.


This is simply incorrect.

1. Successful traders do very nicely indeed at 40-60% profitable trades depending on the style of system traded. It's not about being right, it's about how much you make when you're right.

2. You can design systems with 80%+ profitable trades - you just limit profits and let losses run. Unfortunately, eventually the losses catch up with you and wipe out a month or more's good work in 1 or 2 trades, if not wipe you out entirely.

3. Traders make money by transferring risk from the outright losers (the bad, undisciplined traders without a positive expectancy trading plan) and those that succeed despite themselves (the buy/hold crowd).

4. Is it gambling? Yes, but with one very important difference. With trading, YOU can get to be the casino, not the punter.

5. 95% of investors do not succeed - the most reliable figure I have seen is 30%. Telstra 2 anyone?


Radge has many succinct ways of summing up trading and the markets, and this is one of my favourite quotes;

"The only thing you can control in the market is how much you are prepared to lose."

Amen to that.


----------



## bingk6 (5 May 2008)

MichaelD said:


> It's not about being right, it's about how much you make when you're right.




Indeed !! and more to the point how much you lose when you're not right.


----------



## Wysiwyg (5 May 2008)

Exceptional enlightenment there from Michael D.

The stop loss education is an ongoing thing as my brief scenario shows me ...

I opened an account trading CFD`s and within two weeks i had doubled my account trading indices.THEN about 90% of my trades were losses (beginning with the charts i displayed some time back in the CFD thread) one after the other.I couldn`t believe i could be wrong on so many consecutive occasions.I decided that because my stop losses were being hit I would not use them and hold out for the reversal thinking i couldn`t be consistently wrong.

So i said, if the market (love those generalisations ) wanted to take then i would see how far they/it were prepared to go.The  market took almost everthing in my CFD account.One trade after the other no matter short or long.Strangely just before this phenomenon i heard the whisper that they were gonna take it back and i could have ceased trading and preserved my acc. balance. 

The lesson i learned was 

*"The only thing you can control in the market is how much you are prepared to lose."*


----------



## Nick Radge (5 May 2008)

> Anyone going into a trade expecting only a 50/50 chance of being successful may as well just play two up. To enter a trade you must have the odds well and truly in your favour. Anything under an 80% chance of success is gambling.. Well that's my way of looking at things.




Nioka,
I'm really disappointed in this comment from you. You are a senior poster so I am very surprised. I keep seeing people suggest that the best trading information is found on this (and other) forums. However, I contend, strongly, that there is also a lot of incorrect information. This comment is one.

There are about 3 specific reasons why 95% of people lose money in the markets. I am that confident that I would suggest that intimately understanding those 3 reasons _*can only*_ create success. Understanding and abiding by those 3 concepts _*cannot ever*_ create failure. 

There is a distinct difference between 2-up (or any casino based gambling) and trading. A trader can make him/herself the house with simple concepts. Obviously I am able to backup my comments and would be more than willing to do so.

_
This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision._


----------



## nioka (5 May 2008)

Nick Radge said:


> Nioka,
> I'm really disappointed in this comment from you. You are a senior poster so I am very surprised. I keep seeing people suggest that the best trading information is found on this (and other) forums. However, I contend, strongly, that there is also a lot of incorrect information. This comment is one.
> 
> There are about 3 specific reasons why 95% of people lose money in the markets. I am that confident that I would suggest that intimately understanding those 3 reasons _*can only*_ create success. Understanding and abiding by those 3 concepts _*cannot ever*_ create failure.
> ...



Oops!!!  I stand corrected. I guess I over emphasized my point but I stand by my statement that I would never enter a trade where I personally consider the odds are only 50/50.


----------



## CoffeeKing (5 May 2008)

Many thanks to the replies and the information learned,
it will be taken to the next level...


----------



## MichaelD (5 May 2008)

nioka said:


> I stand by my statement that I would never enter a trade where I personally consider the odds are only 50/50.



The overwhelming research body of evidence would suggest that every trade you enter has pretty much exactly these odds.


----------



## wayneL (5 May 2008)

I used to train a few gallopers for fun. My best horse had 56 starts but only 10 wins; a win rate of ~18%.

Those ten wins paid my wages for several years, bought a property, vehicles and a lot of bling. 

Case closed.


----------



## CFD (5 May 2008)

What odds!


----------



## nioka (5 May 2008)

MichaelD said:


> The overwhelming research body of evidence would suggest that every trade you enter has pretty much exactly these odds.



 Thats rubbish. You are back to two up. Don't you believe in research and an educated guess? Quote me some of the research.


----------



## wayneL (5 May 2008)

nioka said:


> Thats rubbish. You are back to two up. Don't you believe in research and an educated guess? Quote me some of the research.




You're dead right and you're dead wrong. There are all sorts of different methods with different win rates. Most technical trading systems are pretty much bang on 50% though, give or take.

I think what you have, is an inability to consider methods outside of your own experience/expertise.

BTW, Two Up would be outrageously profitable if the payout was 2/1. This is the concept that you are completely missing.


----------



## Nick Radge (5 May 2008)

> ...that I would never enter a trade where I personally consider the odds are only 50/50.




Okay. I accept that. Perhaps you can post the next 10 trades in advance. I simply can't see that you'd know ahead of time whether a trade will be a win or a loss but I also accept I have a lot to learn  I have run at a 40% win rate for 10+ years so am willing to take on that little bit more.

My point with this win% concept is that it creates what I call "The Beginners Cycle". Its the want to be right. Its the want to find something better. Its how we've been brought up that causes it, but it is, in my opinion, a destructive force in the trading arena.

I think its different to attempting to find a 'comfortable' way to participate in the market, but even then a new trader will still attempt to take that and make it better. This creates all sorts of residual issues, both directly and indirectly.

If a new trader can remove this 'being right/being wrong' concept they will be a lot closer to finding the Holy Grail.


----------



## stargazer (5 May 2008)

Hi
Would you rather 7 out of 10 winners (70%) at 1.50 win 
outlay 10
return 10.50
profit 5%

or

1 out of 10 winners (10%) at 20.00 win

outlay 10
return 20

profit 100%

Cheers
SG


----------



## nioka (5 May 2008)

wayneL said:


> I think what you have, is an inability to consider methods outside of your own experience/expertise.
> .



Maybe you are right there but my experience has told me that you need an edge and that edge needs to be a better than a 50/50 chance. I will admit that a trader that has absolutely no emotion and has a foolproof planwill be able to make a profit with a 50/50 chance. That is not the position with most ASF members and I think it is necessary for someone to post a point of view that is contrary to the facts often presented here. If new traders are led into believing that it is as easy as some suggest then they will be in for a shock and maybe a disaster. The same disaster that many margin borrowers recently experienced. Another aspect of trading promoted by a lot of forum posters that I disagree with.

 As for race horses; I had an uncle that made a fortune as a bookmaker and owner. He had a son, my cousin who tried to follow in his footsteps, lost the lot and more. Our family had a lot to do with horses. My grandfather owned and operated Cobb & Co change stations and was renouned for the quality of his horses, he also bred trotters and thoroughbreds. I've bred a few myself and until recently had 12 brood mares.They were more a hobby and an interest than an investment. Horses are great but they have let a lot of people down. I guess that is how you can compare horses to the stock market.


----------



## nioka (5 May 2008)

wayneL said:


> I think what you have, is an inability to consider methods outside of your own experience/expertise.
> .



Maybe you are right there but my experience has told me that you need an edge and that edge needs to be a better than a 50/50 chance. I will admit that a trader that has absolutely no emotion and has a foolproof planwill be able to make a profit with a 50/50 chance. That is not the position with most ASF members and I think it is necessary for someone to post a point of view that is contrary to the facts often presented here. If new traders are led into believing that it is as easy as some suggest then they will be in for a shock and maybe a disaster. The same disaster that many margin borrowers recently experienced. Another aspect of trading promoted by a lot of forum posters that I disagree with.

 As for race horses; I had an uncle that made a fortune as a bookmaker and owner. He had a son, my cousin who tried to follow in his footsteps, lost the lot and more. Our family had a lot to do with horses. My grandfather owned and operated Cobb & Co change stations and was renouned for the quality of his horses, he also bred trotters and thoroughbreds. I've bred a few myself and until recently had 12 brood mares.They were more a hobby and an interest than an investment. Horses are great but they have let a lot of people down.
 I guess that is how you can compare horses to the stock market.


----------



## Nick Radge (5 May 2008)

The issue of an edge is that is multi dimensional. You are simply looking at one side of it.
A forum member will not come unstuck if they understand all the dimensions. As I stated earlier, I think there are 3 core area's required.

Start Jan 1, 2008 to todays close....









Maybe I need more of that bling...Wayne?



_This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision._


----------



## Wysiwyg (5 May 2008)

100% What the !!! remember these guys Citrofresh (CTF) they opened at 22.5c and hit 70c (i know there are better examples for johnny on the spot)
on this announcement ... 



> 27 September 2005
> The Manager
> Company Announcements Office
> Australian Stock Exchange Ltd
> ...




I learned to buy `at market` after that day.In a bull rush ANYTHING is possible percentage wise.FDL example.

Bring back the bull


----------



## wayneL (5 May 2008)

nioka said:


> Maybe you are right there but my experience has told me that you need an edge and that edge needs to be a better than a 50/50 chance. I will admit that a trader that has absolutely no emotion and has a foolproof planwill be able to make a profit with a 50/50 chance. That is not the position with most ASF members and I think it is necessary for someone to post a point of view that is contrary to the facts often presented here. If new traders are led into believing that it is as easy as some suggest then they will be in for a shock and maybe a disaster. The same disaster that many margin borrowers recently experienced. Another aspect of trading promoted by a lot of forum posters that I disagree with.




To make that suggestion, one must discern the trader's _modus operandi_.

An edge doesn't necessary exist in a superior win rate at all. There are plenty of covered call/credit spread traders with 80% win rates, but who are overall losers.

Likewise, plenty of 35% win rate systems that are overall winners.

A fundamental trader/investor may well have an 80% win rate, and an edge may exist in research, but in such a method there are also contemporaneous factors that will temper that win rate when overall profit is considered.

Seeing as you've been around horses a bit, consider the professional punter. His/her win rate will be substantially less than 50%, yet to be a pro, he/she will have a definite edge... the edge is not in the win rate, it is in the mathematical expectancy which considers at least one other vector, namely risk/reward and sometimes frequency.


----------



## tech/a (5 May 2008)

> Maybe you are right there but my experience has told me that you need an edge and that edge needs to be a better than a 50/50 chance. I will admit that a trader that has absolutely no emotion and has a foolproof planwill be able to make a profit with a 50/50 chance. That is not the position with most ASF members and I think it is necessary for someone to post a point of view that is contrary to the facts often presented here. If new traders are led into believing that it is as easy as some suggest then they will be in for a shock and maybe a disaster. The same disaster that many margin borrowers recently experienced. Another aspect of trading promoted by a lot of forum posters that I disagree with.




You are not considering that an "edge" can be gained with less than a 50% win rate.Radge demonstrates that below.
T/Trader has demonstrated it for 6 yrs.(35% ish win rate.)

Is it possible that both you and those who blow Margin accounts dont understand their correct use?

A further question.
Do you believe that you can have a win rate of 80% and still go broke?
I do.


----------



## MRC & Co (5 May 2008)

Nick Radge said:


> The issue of an edge is that is multi dimensional. You are simply looking at one side of it.




Absolutely.

I have a win % of 70%.  I have no stop and my timeframe is generally around 5 years.  Market moves up the majority of the time, no?  Especially over a 5 year period recently.   

Multi dimensional right there.  Win % means close to nothing IMHO.

Oh, looks like Wayne already beat me too it, in a few more words!


----------



## wayneL (5 May 2008)

Nick Radge said:


> The issue of an edge is that is multi dimensional. You are simply looking at one side of it.
> A forum member will not come unstuck if they understand all the dimensions. As I stated earlier, I think there are 3 core area's required.
> 
> Start Jan 1, 2008 to todays close....
> ...




There you go Nokia, that expectancy {((1 + reward/risk ratio) * win/loss ratio)-1} comes out to 0.71. 

There is the edge.


----------



## chrissyoscar (5 May 2008)

I'm not new to the market but have been one of these investors who bought shares and then put them away.
I have been lucky and haven't lost money doing this.
With the share market so low I recently got finance and decided to buy more. I've been learning by reading and watching the finance/share market channels on Foxtel etc.
The thing that keeps coming up is all the experts say if the price of a stock drops significantly and for a reason then don't get attached to it and sell.
Don't hold onto it and hope it bounces back.
sell the stock and buy elsewhere, if it starts to come good and you still like it then get back into it.
I had caltex shares and about 1 week ago it took a dive and dropped about $1 in a day.
I got out the next day and on Thursday last week I bought Atlas iron.
Now by doing this I have made about $1000 on Atlas but if I still had Caltex I'll still be at a loss.
So I believe with the other's that it's not about making money on every stock you own it's about making the most of the ones that go up and limiting the loss on the ones that go down.
Although I have had shares for years i have never been an active investor and consider myself a newbie as far as knowledge in shares is concerned. I will make mistakes but hopefully learn from them.
This is an informative site and a great find.


----------



## nioka (5 May 2008)

wayneL said:


> There you go Nokia, that expectancy {((1 + reward/risk ratio) * win/loss ratio)-1} comes out to 0.71.
> 
> There is the edge.




 I admit it. you have me convinced. Well 50% convinced.


----------



## tech/a (6 May 2008)

MRC & Co said:


> Absolutely.
> 
> I have a win % of 70%.  I have no stop and my timeframe is generally around 5 years.  Market moves up the majority of the time, no?  Especially over a 5 year period recently.
> 
> ...




Your not trading.
Pretty close to buy and hold.


----------



## nizar (6 May 2008)

MRC & Co said:


> Absolutely.
> 
> I have a win % of 70%.  I have no stop and my timeframe is generally around 5 years.  Market moves up the majority of the time, no?  Especially over a 5 year period recently.
> 
> ...




Great thread guys, looks like all the questions have been covered.

MRC & Co.

No stop eh?
I'd be very cautious in thinking you have a profitable method as I suspect the only time you are going to be make money is in bullmarkets.

I haven't read or heard of a trader who was successful in the markets and didn't use a stop of some sort.


----------



## MRC & Co (6 May 2008)

lol, note the 

I am stating the typical "investor" methods.  Showing how a high win % does not mean a thing.

I definately do not trade like that, as shown by numerous real time examples I have stated in the forums.


----------



## nizar (6 May 2008)

MRC & Co said:


> lol, note the
> 
> I am stating the typical "investor" methods.  Showing how a high win % does not mean a thing.
> 
> I definately do not trade like that, as shown by numerous real time examples I have stated in the forums.




LOL yeh sorry i thought it was a bit out of character.

But looking above, it seems i wasnt the only one that was fooled :


----------

