# Stop Loss - where to set it?



## gamefisherman (7 August 2009)

When we buy from now on ....lol and I really mean it, what do people recommend setting the stop loss/falling sell at..... For example....if we bought a stock at .50 would we work on 5% or 2 cents.....what do you do and how do you work it........We need to master so any comments would be most appreciated.........

Best wishes


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## kam75 (7 August 2009)

*Re: Falling sell - where to set it?*



gamefisherman said:


> When we buy from now on ....lol and I really mean it, what do people recommend setting the stop loss/falling sell at..... For example....if we bought a stock at .50 would we work on 5% or 2 cents.....what do you do and how do you work it........We need to master so any comments would be most appreciated.........
> 
> Best wishes




Excellent question.  It depends on how much you are prepared to risk.  Generally its best to place stops under previous technical support levels.  The market usually does not know, nor does it care whether you're risking 5%, 10% or whatever.  I use this in combination of other pivot points and fibonacci retracement levels.  Trendlines are good, you may use moving averages or the average true range indicator as well.

I generally try to limit my initial risk on a trade to no more than 10% and try to get my stop up to breakeven and beyond asap.  Also, the cheaper the stock, the more risk you will usually have to accept.  For example, on a 50c stock, you'll have more initial percentage risk than on a $5 or $15 stock.  So you have to be careful when sizing your position to work out a meaningful breakeven level.  

Hope this helps.


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## beamstas (7 August 2009)

*Re: Falling sell - where to set it?*

Gamefishermen, 

Try doing it the other way around

1) Determine how much you want to risk per trade.. Generally 2% of capital is normal.

2) Determine where to put your stop loss, example you might think that a stop at 40c is a good place for a stock valued 50c

3) Your risk per trade is 2% of capital, and you have for example, $100,000. This means you can risk $2000 for the trade

4) You have $2000 risk and 10c risk per share (price 50c stop loss 40c = 10c risk), so you can buy $2000/$0.10 = 20,000 shares.


Compare this to a 50c stock and you want the stop loss at 25cents, this means you can buy $2000/$0.25 = 8,000 shares.

By doing it this way you don't have to have an incredibly tight stop, ie 5% less than the price.

This method is called fixed fractional position sizing and is discussed better in most decent trading books.

Brad


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## Aussiest (7 August 2009)

*Re: Falling sell - where to set it?*

Or better yet, you could determine where you want to place your trade according to technical levels and then decide how much you want to risk.

On this short, the entry is $26.76, the stop loss is set at $27.30, just above resistance of 27. You could decide on 0.5, 1 or 2% of capital. Or, you could pick an arbitrary amount.

If you decided you wanted to risk $500.00 on this trade, your position size would be:

500/0.54 = 925 shares.


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## Tradesurfer (8 August 2009)

Not in disagreement with anything thats been posted. Have a different take on it with regard to understanding that each stock, etf, futures contract, Forex position has its own trading range, breathing room so to speak.

Thats why I like to use ATR to develop volatility based stops.
I previous started a thread on it so check it out here 

https://www.aussiestockforums.com/forums/showthread.php?t=15975&highlight=Volatility+Stops+based+atr


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## tech/a (8 August 2009)

The question being "Where to set it"

*(1) Initial Stop*.
My personal view is that if I'm short term trading I want high return with very low risk to capital base over a very short time.
Its not un common to have 6 trades of .25 to .5% risk in play with 3 being Stopped out each day and others added--while 1 or 2 fly and return multiple Reward to risk---10-20x  I use 10-60 min charts

If long term then I'm likely to add to positions which have a much higher timeframe.So will give far more room. Ive found the optimum (from testing)---regradless of method of stop placement is 8-12% of initial buy price. This gives a balance of being far enough away from most noise (SUN yesterday)--but not that far away that you find yourself lot inbetween initial buy and stop for prolonged periods---hence opportunity cost.

*(2) Trailing Stops.*
Again timeframe has a great deal of bearing.
ATR's are fine but setting will be to suit timeframe.
For short term I personally will use a strong indication in price and range that momentum has likely stopped, within 2 shorter confirming timeframes.These bars allow very tight stop points and re entry criteria which wont hurt the overall position strategy.

Longterm I look for market sync. as the best guide.
Strong stocks will stay out of sync longer than weak stocks so there is some warning for some trades well before they turn for extended periods.


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## kam75 (14 August 2009)

How about: "At a level where you do not expect the market to trade, but, if it does, you sure as hell wanna be out of the stock".


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## tech/a (14 August 2009)

kam75 said:


> How about: "At a level where you do not expect the market to trade, but, if it does, you sure as hell wanna be out of the stock".




So when it does youve lost more than you can bare.
Now if its an exit----Outlier move---then your cooking.


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## motorway (14 August 2009)

Tradesurfer said:


> Not in disagreement with anything thats been posted. Have a different take on it with regard to understanding that each stock, etf, futures contract, Forex position has its own trading range, breathing room so to speak.
> 
> Thats why I like to use ATR to develop volatility based stops.
> I previous started a thread on it so check it out here
> ...





Do you want mountains or molehills ?
Interesting topic

What are stops for ?

Yes you can use ATR and such
to make molehills look like mountains
To keep you IN the trade

But If you want Mountains
There is nothing wrong
with using the same type of stop loss An Absolute stop loss ( derived purely from price. And more options here than you THINK more than just X points or X percent )


Such a stop loss is part of the entry 
as a stop to opportunity cost/loss

Yes it stops loss
But it's true function is to 

Maximize GAINS
By getting YOU OUT so you can GET IN

Not curve fitted to "BEHAVIOUR" to allow for a stocks
"character"

This can have it's place too--"Fitting"
where there are reasons ( Particular screens usually fundamental )
to want to keep IN


DO you have a HURDLE
or do you want all the Horses to look good ?

Character Changes

To amplify or Damp ? That is the question 


motorway


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## Garpal Gumnut (14 August 2009)

tech/a said:


> The question being "Where to set it"
> 
> *(1) Initial Stop*.
> 
> ...




This is golden advice Tech. I only trade long term and agree.

It should be given to every person opening a broking account.

gg


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## white_goodman (14 August 2009)

kam75 said:


> How about: "At a level where you do not expect the market to trade, but, if it does, you sure as hell wanna be out of the stock".




exactly your stop loss is put at a place where it proves your rationale for the trade is wrong. Once you figure out that stop loss point then you figure out how many shares/lots to take based upon your risk %


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## gamefisherman (15 August 2009)

Thank you for all of your replies.....


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## Prem (17 August 2009)

I dont use stop losses 

i always thought if what u bought became cheaper 

then u just buy more 

just pick the stocks wisely


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## gamefisherman (17 August 2009)

if you average down you risk chasing your losses........that is what many say..........however if you have that gut feeling that they are a good stock, and the TA indicates an forthcoming upward trend then perhaps.........

I would be careful though, as we now ALWAYS have tight stop losses on all of our trades............better to cut and run at say 5% that face an even bigger loss............lol we just learned that lesson the hardway..........never again though....."stop losses" are just that ....................

Good luck


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## tech/a (17 August 2009)

Prem said:


> I dont use stop losses
> 
> i always thought if what u bought became cheaper
> 
> ...





So you pick the stocks wisely and if they become cheaper just buy more.
So I suppose you could be entirely reckless and when they became dearer just sell them.

Man what have I been doing for 15 yrs!


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## beamstas (17 August 2009)

tech/a said:


> So you pick the stocks wisely and if they become cheaper just buy more.
> So I suppose you could be entirely reckless and when they became dearer just sell them.
> 
> Man what have I been doing for 15 yrs!




*Exactly.*
Basic maths prevails.

You hold a $1 stock. Stock goes to 10c
You have lost 90%.

If you sold with a stop and re bought at 10c and it moves back to $1 you have made 900%.

Still holding from $1 and doubling position at 10c (avgin down) you have made 81%.

You need to take a position 1000 times larger if averaging down, to have the same affect as just cutting a loss and rebuying at another time.

Stop losses are good.


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## NeuromanceR (17 August 2009)

Prem said:


> I dont use stop losses
> 
> i always thought if what u bought became cheaper
> 
> ...




Someone needs to put up a chart of HIH.


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## Prem (18 August 2009)

by picking the stocks wisely i wouldnt have bought hih in the first place

now say i bought mqg at 60$ which i did 

and then it went to 40$ (buy some more)

and then it went to 17$ ( sell my house and buy some more)

and now its $40 (sell some proportionally to how much you invested at each step) not all of it though, not yet 

As long as the stock doesnt pack up ( hih, abs) then this strategy *usually *works 

Im still new so be nice


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## Mr J (18 August 2009)

> Im still new so be nice




Fine. Longterm survival requires risk management, and you are currently not practicing it. A stop-loss should ideally be placed at wherever the market suggests your strategy was a poor one. You should have a plan going into the trade - have an idea of how you want it to perform, and any actions that need to be taken.



> then this strategy usually works




The times it doesn't you lose more than you could afford.


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## motorway (18 August 2009)

now say i bought mqg at 60$ which i did 

and got stopped out for small loss

and then it went to 40$ 
and I bought many more BUT got stopped out for a small loss again


and then it went to 17$ 

And since I had lots of cash I bought 3.5 times more  than I ever thought possible..

and now its $40 

I might buy an Island and retire 

motorway


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## Prem (18 August 2009)

lols ok ic


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## motorway (18 August 2009)

motorway said:


> Do you want mountains or molehills ?
> Interesting topic
> 
> Such a stop loss is part of the entry
> ...




Yes it stops loss
_But it's true function is to 
_
*Maximize GAINS
*By getting YOU OUT so you can GET IN


motorway


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## white_goodman (18 August 2009)

Prem said:


> by picking the stocks wisely i wouldnt have bought hih in the first place
> 
> now say i bought mqg at 60$ which i did
> 
> ...




black swans, they always happen


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## beamstas (18 August 2009)

white_goodman said:


> black swans, they always happen




No
But they happen more than you expect!


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## trainspotter (18 August 2009)

You set it when you feel these things in the back of your throat.


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## nomore4s (19 August 2009)

Prem said:


> by picking the stocks wisely i wouldnt have bought hih in the first place
> 
> now say i bought mqg at 60$ which i did
> 
> ...




What happens when you run out of money? Or the stock doesn't go back up to $40?



motorway said:


> now say i bought mqg at 60$ which i did
> 
> and got stopped out for small loss
> 
> ...




lol, exactly


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## tasmanian (19 August 2009)

motorway said:


> now say i bought mqg at 60$ which i did
> 
> and got stopped out for small loss
> 
> ...




absolute gold!!!!!


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## Prem (19 August 2009)

Quick question 

once you get stopped out 

how do u know when to get back in >?


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## Aussiest (19 August 2009)

motorway said:


> now say i bought mqg at 60$ which i did
> 
> and got stopped out for small loss
> 
> ...




This is all very well, (and so is tech's chart), but in an ideal world, when do you know when to get back in? What if the guy got stopped out at $17.00 and then kept getting stopped out all the way up to $30.00 (even up-trending stocks swing around a bit), before giving up?


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## Mr J (19 August 2009)

Prem said:


> how do u know when to get back in >?




When a situation develops that you can trade with positive expectancy. For example, if you follow trends, you'd wait for a new trend to develop.


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## motorway (19 August 2009)

Aussiest said:


> This is all very well, (and so is tech's chart), but in an ideal world, when do you know when to get back in? What if the guy got stopped out at $17.00 and then kept getting stopped out all the way up to $30.00 (even up-trending stocks swing around a bit), before giving up?




With the example
it is possible a trader could have ( need not )
A working hypothesis

eg for xyz this stock will rebound for reasons abc

OK Hypothesis = a working guess ( technical , fundamental or hybrid )

Must be tested

Must look for disconfirmation
When there is none that is your entry

So the Chart is beginning and ending

When do you enter

When the chart allows you to
and the entry matters
as your post suggests

and while you were in cash maybe you did not buy mqg
But  were making too much money to be worried. because you bought something else 

To paraphrase someone else

*everything works until it doesn't*
The chart provides that answer

If there is no red light 
then proceed with caution

When do you enter
when ( the very when )
It stops going down and starts going up...

( This is a defined entry )

Now this _very when_ becomes a question of the scale of magnitude
you are operating on ( or want to )

So called long term is different to
short term

The hurdle  at the turning point is different
This is about what size are  the jumps you measure
( throw long ( or even all ) moving averages in the bin where they belong imvho )

http://www.clayallen.com/hypothesis testing cluster.pdf

motorway


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## Prem (19 August 2009)

how much does a stop loss cost ?

etrade?


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## tech/a (19 August 2009)

Prem said:


> how much does a stop loss cost ?
> 
> etrade?




*A lot less than not having one!*


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## DocK (19 August 2009)

Prem said:


> how much does a stop loss cost ?
> 
> etrade?




Comsec give the option of $9.95 pay up-front, or $14.95 upon being triggered - these amounts are min for trades up to approx $20,000.  Not sure about etrade, but would assume similar?  I've found the cost of the extra brokerage is less than the loss that would have been sustained without one


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## nomore4s (19 August 2009)

DocK said:


> Comsec give the option of $9.95 pay up-front, or $14.95 upon being triggered - these amounts are min for trades up to approx $20,000.  Not sure about etrade, but would assume similar?  I've found the cost of the extra brokerage is less than the loss that would have been sustained without one




Get a decent broker, shouldn't cost you anything.

Maquarie Prime stops are free and the platform is heaps better then Commsec. It lets you set stops as well as limit orders that trigger when a price is reached, you can also short stocks.

Or if you are really serious about trading (as opposed to investing) Interactive brokers offers even more features as well as $6 brokerage on Aussie stocks as well as a range of other markets.


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## ThingyMajiggy (19 August 2009)

nomore4s said:


> Get a decent broker, shouldn't cost you anything.




Reckon! Paying for stops, bugger that. Go with someone worthwhile. Paying for it would not be helping its whole purpose, to minimize loss, have to allow for the cost of actually having it too


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## Prem (20 August 2009)

nomore4s said:


> Get a decent broker, .




Who do you recommend?


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## tech/a (20 August 2009)

IB is the best in my view but min capital is $15k US (I think).

You cant trade pretty well anything in the world and have all sorts of conditional orders.
$6 both ways for trades of $10K or less.
their TWS platdorm is fantastic.
But a real pain to set up an account.
Worth it though I like the security features.


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## skyQuake (20 August 2009)

tech/a said:


> IB is the best in my view but min capital is $15k US (I think).
> 
> You cant trade pretty well anything in the world and have all sorts of conditional orders.
> $6 both ways for trades of $10K or less.
> ...




$3k for 21 or under.

Absolutely fantastic system. Has a bazillion different conditional orders all free. 
Still cant believe commsuc and efail charge extra for conditional orders...


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## nomore4s (20 August 2009)

Prem said:


> Who do you recommend?




Maquarie Prime or Interactive Brokers depending on your goals and trading/investing methods.

As Tech said with IB it is a bit of a process and min funds are required and with no chess sponsorship it probably isn't the best for longer term investing.

With Mac Prime brokerage is $20 min but has good features compared to Commsec & Etrade. Also gives you access to higher margin levels then IB.


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## Aussiest (20 August 2009)

nomore4s said:


> Get a decent broker, shouldn't cost you anything.
> 
> Maquarie Prime stops are free and the platform is heaps better then Commsec. It lets you set stops as well as limit orders that trigger when a price is reached, you can also short stocks.




I second that.

SkyQuake: lol @ efail. E*Trade used to mess up my orders on a regular basis, despite me telling them time and time again in their stupid customer service questionnaires.


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## pedrod (20 August 2009)

skyQuake said:


> $3k for 21 or under.
> 
> Absolutely fantastic system. Has a bazillion different conditional orders all free.
> Still cant believe commsuc and efail charge extra for conditional orders...




Etrade don't charge for conditional orders when trading CFDs. I would have thought Commsec were similar.


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## pedrod (20 August 2009)

Prem said:


> Who do you recommend?




I used E*Trade, however have moved to IG markets. I was going to join IB, however they were$15k USD to start. IG are fantasticly quick and helpful at setting up you account. IG also have a trading platform called Tradecents that allows you to trade forex on very small amount to start with. This is very good to start you off.

However, when you are then let out into the real world of forex then the stake are higher and the loses can be greater and swift, as I have found.

IG also do CFD trades on ASX stock at around $7 or $8 per trade.

Account has no minimum balance or trade. THere may be a $1000 minmum to begin.


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## nomore4s (20 August 2009)

pedrod said:


> I used E*Trade, however have moved to IG markets. I was going to join IB, however they were$15k USD to start. IG are fantasticly quick and helpful at setting up you account. IG also have a trading platform called Tradecents that allows you to trade forex on very small amount to start with. This is very good to start you off.
> 
> However, when you are then let out into the real world of forex then the stake are higher and the loses can be greater and swift, as I have found.
> 
> ...




IG are CFD broker, IB are a real broker you trade the real markets. Not even close to being comparable imo.


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## warezwana (21 August 2009)

Prem said:


> I dont use stop losses




Use or Lose
If you don't use them your winning luck at picking winners will run out and your Account balance *will* look something like this....  $0


(learn't the hard way)  but I did learn


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## Mr J (21 August 2009)

pedrod said:


> I used E*Trade, however have moved to IG markets. I was going to join IB, however they were$15k USD to start. IG are fantasticly quick and helpful at setting up you account. IG also have a trading platform called Tradecents that allows you to trade forex on very small amount to start with. This is very good to start you off.
> 
> However, when you are then let out into the real world of forex then the stake are higher and the loses can be greater and swift, as I have found.
> 
> ...




Instead of worrying about getting the minimal account balance needed, worry about how much you need to trade with a decent chance of success. $1000 paying $7 or $8 per trade just won't cut it. Say you risk 5% per trade, you'd have to make 15% per trade just to breakeven. Even if you could beat that, you're making peanuts and placing large wagers relative to your capital (5% will see very large fluctuations).

IB requires $12k or so, but that's also about right. It's an amount that allows for reasonable commissions and for gains to be worthwhile. You don't even need to keep that amount there. IB also allows the trading of many, many markets - stocks (aussie and foreign), futures, options, forex, bonds etc.


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## Prem (26 August 2009)

No one still has answered my question 

what if you get stoped out ?

when to buy back in ?

what if price dips below your stop loss 

then rockets up again?


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## Mr J (26 August 2009)

Prem said:


> No one still has answered my question




I already have:



Mr J said:


> When a situation develops that you can trade with positive expectancy. For example, if you follow trends, you'd wait for a new trend to develop.




If you're looking for specifics, it's something you have to work out for yourself.


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## Ardyne (26 August 2009)

Prem, if you get stopped out you may never get back in. The trade is over. 

Getting stopped out and having the stock rocket up the next day has hapened to nearly all of us. Its part of the business. Many times you'll get stopped out and the stock will continue down. I use prices below and above support and resistance lines respectively to set stops. 

cheers


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## nunthewiser (26 August 2009)

Bought BBI today at 10 ........ stopped out at 9.8 ........ dipped to 9.7.maybe 9.6? flew straight past back to 11.5 /11 sell 

gotta love trading 

would love to meet a trader that this kind of thing never happens tho


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## wayneL (26 August 2009)

nunthewiser said:


> Bought BBI today at 10 ........ stopped out at 9.8 ........ dipped to 9.7.maybe 9.6? flew straight past back to 11.5 /11 sell
> 
> gotta love trading
> 
> would love to meet a trader that this kind of thing never happens tho



There are plenty of those around. They are called hindsight traders.


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## CFD (27 August 2009)

and those who get criticised for trading without a stop loss!


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## Adam A (27 August 2009)

Bought BUY at 0.032 x 110,000

Got stopped out at 0.037

Watched it go to 0.18c within in about a week

Painfull to watch but rules were reset this financial year 

Plan the trade and trade the plan

Lost out on this one,but stops have saved me many many times


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## tech/a (27 August 2009)

Adam A said:


> Bought BUY at 0.032 x 110,000
> 
> Got stopped out at 0.037
> 
> ...




Change your rules.
Stops are to mitigate risk NOT profit!


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## marknz88 (27 August 2009)

haha I think he just get his figures around the wrong way...:


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## Adam A (28 August 2009)

The stock went to 0.04 then dropped back down
Happened just prior to the run 
Thanks for all the input on the thread, great reading


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## tech/a (28 August 2009)

So your trailing was a bit tight and your re entry wasnt in a plan.


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## moXJO (28 August 2009)

Any one read Larry connors where it has said stops actually hurt?




> For many years, I advocated the use of stops in trading. If you look at any of my published work untill 2004, you will see the words "use stops" alongside most strategies.
> 
> In early 2005 we started running tests with the hope of identifying the optimal stop levels to use. What came back though was completely the opposite of anything we ever imagined.



It goes on to say they ran hundreds of tests that have shown the same type of behavior.


Test example given was stock above 200 day ma and closes at a 10 day low. The exit is a close above its 10-day ma, or when a stop hit x% below the entry

*stop% ---trades---avg%profit/loss----avg bars held---% of win*

      none-----236237------.58%----------------7.74-------------69.81%
        1 ------394480------.19%----------------2.89-------------26.89%
        3 ------321824------.20%----------------4.11-------------47.31%
        5------286991------.20% ----------------5.01-------------57.54%
        7------ 268410------.22%----------------5.65-------------62.72%
        10------253863------.27%----------------6.31------------- 66.55%
        20------239605 ------.39%----------------7.26-------------69.35%
        50------236337 ------.56%---------------- 7.70-------------69.81%

Book was written pre-crash.


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## Adam A (28 August 2009)

Thats correct Tech/a
Started going up and up and i didnt feel comfortable chasing it,ive been caught before doing this
Really was an amazing run up about 500% in a very short time
Not to worry,still learning, i guess the process never stops


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## motorway (30 August 2009)

moXJO said:


> Any one read Larry connors where it has said stops actually hurt?
> 
> 
> 
> ...




Where is his re entry into the same stock or a different one ?

In Getting out  the point is so you can get in..

I regard a stop loss as OFFENSE
it gets you out to get you in

You retreat before large forces of SUPPLY
only for one reason
TO ATTACK

OFFENSE IS OFFENSE
DEFENSE IS OFFENSE

Getting out of what could be good MAKES NO SENSE
unless you get into something BETTER

RETREAT is ATTACK
( IF OPPRTUNITY PRESENTS )


A test where in getting out you don't get back into something 
IS no test..

because It Stops opportunity LOSS ( Yes as I said it stops loss too )

Please enter favourite military analogy "------------"

Many examples of retreat leading to victory (Or could have )
Must be many where NO retreat proved disastrous

Stalingrad anyone ?


Much to learn from  Confederate Civil War General


Joseph Eggleston Johnston



> directed a masterful delaying campaign against Sherman during his advance on Atlanta. However, his continued withdrawals raised the ire of Jefferson Davis, and he was relieved in front of the city.
> His successor, John B. Hood, then began his destruction of the Army of Tennessee with reckless tactics.




Johnston would only engage against the superior forces of Sherman on His own terms He wanted to either ambush him or make him overextend his lines

He continued to use a stop loss waiting for the right opportunity to enter the fray...
He continually set ambushes and when they were avoided withdrew
If he never got the chance to attack he would have kept all his powder dry.
Because if his Army was destroyed there was no second chance
But with it intact... There was always a chance...

John B Hood stood and fought in series of charges
after which there was no more any army to Speak of, and Sherman marched to the sea...


Johnston was blamed for not attacking.. For continual defensive movements.
But that was wrong (imho ) He knew that the best offense was from defense
esp when the market can steam roll over the top of you like Sherman...

But The whole point of getting out was to GET IN
Not just to GET OUT

It is part of the ENTRY TECHNIQUE
you get out to get IN

You move left to move right
up to go down etc

motorway


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## Wysiwyg (26 November 2009)

tech/a said:


> The question being "Where to set it"
> 
> *(1) Initial Stop*.
> If long term then I'm likely to add to positions which have a much higher timeframe.So will give far more room.* Ive found the optimum (from testing)---regradless of method of stop placement is 8-12% of initial buy* *price.* This gives a balance of being far enough away from most noise (SUN yesterday)--but not that far away that you find yourself lot in between initial buy and stop for prolonged periods---hence opportunity cost.



Very very interesting because I am using an initial stop loss below the previous 20 days lowest low (pivot point). The question I have is ------ is there an optimum n days (other than 20) for a long term trend riding strategy? Or alternatively does anyone use an initial stop loss below the lowest low on another duration (besides 20 days) that works better.

Then, how much lower? 1 *ATR  or less?


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## squeegee (3 December 2009)

Hi guys, FANTASTIC forum.....

I havent really done much trading, though love reading about stratergies etc...and one day I will start!!!!!. Id say I am more of investor at present (alot driven by fear to sell as the only time I looked to trade was a flop..IMO.....I bought WOR at about $11 and paper traded it for months and sold out at $17 and waited for a retrace that never came, and watched it go all the way to $28). I have been invested since Nov 2008 (nice timing), and generally hevent touched my portfolio too much, but I do add to it often, and reevaluate positions often. Obviously my portfolio has done as well as most as timing was pretty good, and generally I am in ASX50/100 stocks with a mixture of high/solid dividends with upside potential based on EPS and DPS of 70% or more payouts, and the divs of my portfolio are around 10% (+franking) based on buy in price. I dont use stop losses at present (thought I have been told I should....but see above why I dont............ I do alot...and I mean alot of study on companies I buy into on past performance, and volatility of divs, down to shareholder holdings etc. 

anyway.......

I have a couple of question. 

1. In a bear market, like that we have just been thru, if one applied stop losses, and got closed out of all trades as all stocks basically tanked at say just after the ASX peak (Nov, 2007?), how would you have seen rentry points between Nov 2007, and say Nov 2008 (first major bottom, where I got in) or March 2009 (bottom)........in a market that is cycling down. Did most of you experienced traders stay on the sidelines, or continually bump against a downtrending market?

2. Do you guys mostly hang around the same stocks? Ie sell XYZ when it mets a top range, or trailing loss, and then wait for a retrace to enter, or if a stock bolts, do you just let it go, and look for a new stock to trade?

many thanks


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## rbbrain (29 December 2009)

Okay, time for my 2-bobs worth about "Stop Loss - where to set it?"

(Noting that much of this is already said somewhere above, but in different words.)

Firstly - get your Trading Plan and Strategy sorted out, and written down on paper, and follow it.  Having no trading plan is inviting disaster. If you have a plan that is proven "successful" in hindsight, then you can trade it with confidence going forward. But note that different market conditions (eg. bear versus bull market) can produce results different. And the price charts of different companies can have different "personalities". What works with one stock might not work exactly the same with another.

Second - Work out your risk and money management vallues. Many people agree to "risk no more than 2% of available capital on any one trade". This will keep you in the game longer. You will be able to financially withstand many more than ten losses in a row (even though this is psychologically difficult to cope with).

Third - when setting a stop loss position, it must be determined using some sensible chart-based concept. Such as a prior low, or clear support level.  It is no good putting it half way down towards a support level.

What we really want to achieve is a higher probability of success. We need to be clever about these things and minimise the risks.

In a recent simple presentation I did to the BullCharts User Group in Melbourne I outlined 7 different ways to determine a Stop Loss level. And they are all correct. The simple presentation is available for public download from my ShMarket Toolbox web site (Presentations section).

What about spikes that take out your stop? It is important to be emotionally stable here, and accept the situation, and move on. It will happen. We can only be right about 30% to 70% of the time. Provided we minimise our losses and let our profits run, then we should be in front. This is how most good traders stay in the game for the long term.

To quickly address the question of when to get back in? - It depends on what your trading strategy says. If you have a strategy which describes your entry criteria, and the criteria are fulfilled, then enter.

Cheers


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## gamefisherman (29 December 2009)

Just be reading the recent posts........some awesome stuff here, many thanx to all those who have contributed.......


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## wbosher (30 December 2009)

rbbrain said:


> Third - when setting a stop loss position, it must be determined using some sensible chart-based concept. Such as a prior low, or clear support level.  It is no good putting it half way down towards a support level.
> 
> Cheers




Couldn't agree more, I stick to this concept religiously. I also learnt the hard way . What methods do you guys use for a trailing stop? I generally use the count back method (I think that's what it's called), once I get three upward bars I just keep moving it up each time the price goes up. I've been stopped out a few times, only to watch in horror as the upward trend continues, but not too often.

Also, do most of you sell at a close below the stop, or if the intraday price falls below your stop? I prefer a close below but I'm interested in other peoples methods.


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## motorway (15 October 2010)

motorway said:


> Where is his re entry into the same stock or a different one ?
> 
> In Getting out  the point is so you can get in..
> 
> ...





Study leaves out the importance of the stop loss
needing  also to be seen in terms of opportunity cost

As allowing / as part of the getting in..

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1214737


I see flaw in this study


Motorway


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## pavilion103 (10 May 2011)

Hey guys, I'm after some opinions. 

I am looking to trade with fixed fractional position sizing. 

So for example, I have a $20,000 account and want to risk 1% per trade ($200).

If I buy at 50c and there is good technical stop level at 45c. Then my position size is $200/$0.05 = $4,000. 

So anytime my initial stop is triggers I will lose $200. 

So from the above it appears that whatever percentage I put the stop from the entry price I will only lose $200 maximum if my initial stop is hit. 


I was reading this in an article however and it confused me:
*"For example, widening your initial stop will increase your percentage of winning trades by giving price more room to move into profit without being stopped out, but this will come at the expense of a larger average loss on those occasions you do get stopped out"*

How can this produce average larger losses? Wouldn't all losses me $200 max if the intial stop is hit? Isn't the risk that there is MORE chance of a tigher stop being activated, not a larger loss on a wide stop?


Is there something really big and obvious that I am missing here? 
Thanks,
Matt


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## tech/a (10 May 2011)

Its a very general comment--
Anyway they obviously are taking the same number of shares with a wider stop value.
They are not
(1) fixing their risk by taking a fractional position sizing
Or 
(2) using a fixed Risk amount.

By the way it doesn't necessarily guarantee a greater win rate.
If its too wide it can cause you opportunity cost as the trade wallows between entry price and stop price.

The sweet spot seems to be no more than 12% from the buy price and no less than 6% from the buy price. IE $1.00 buy 88c or at worst 94c as a rule of thumb---the stop can be technical and if it falls in that range then its pretty good from my testing.


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## pavilion103 (10 May 2011)

tech/a said:


> Its a very general comment--
> Anyway they obviously are taking the same number of shares with a wider stop value.
> They are not
> (1) fixing their risk by taking a fractional position sizing
> ...




So if someone uses a wider/tighter stop with the same number of shares, does this mean that they would be risking different sizes of their portfolio per trade. E.g. instead of say 2% then maybe 1% or 3%?
What are your thoughts on this? Do you think fixed fractional is one of the more or least effective ways to place stops? (I am finding that I'm struggling to generate large multiple of R gains e.g. most seem to range between 0.5R and 1R, which is very frustrating). I'm not sure if I'm missing the piece of some sort of puzzle here.


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## pavilion103 (10 May 2011)

So with that general guide (from your experience) of 6-12%. Does that mean you would not take one like this (irrespective of whether it is a good entry or not. I'm more concerned about the gap from entry to initial stop in this example).

Here it looks ok from a techincal point of view (support line). But the stop is only 2.5% from entry. Even that looks widish on this chart. (entry is on the first bar to break support)

Some of the companies I've entered like this one don't move by a huge percentage on average. Are these poor companies to trade?


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## tech/a (10 May 2011)

pavilion103 said:


> So if someone uses a wider/tighter stop with the same number of shares, does this mean that they would be risking different sizes of their portfolio per trade. E.g. instead of say 2% then maybe 1% or 3%?
> What are your thoughts on this? Do you think fixed fractional is one of the more or least effective ways to place stops? (I am finding that I'm struggling to generate large multiple of R gains e.g. most seem to range between 0.5R and 1R, which is very frustrating). I'm not sure if I'm missing the piece of some sort of puzzle here.




If your only getting .5R on a trade
Either the entry isnt with enough momentum
The stop is too wide
Or your not letting the trade run long enough.
It appears you've not tested your trading method.
As such you are struggling with whats----right!

You should really not trade until you understand the consequences of the various scinarios you put up for answering.
Testing will educate you faster than anything I know of.


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## tech/a (10 May 2011)

pavilion103 said:


> So with that general guide (from your experience) of 6-12%. Does that mean you would not take one like this (irrespective of whether it is a good entry or not. I'm more concerned about the gap from entry to initial stop in this example).
> 
> Here it looks ok from a techincal point of view (support line). But the stop is only 2.5% from entry. Even that looks widish on this chart. (entry is on the first bar to break support)
> 
> ...




I would not be trading this your bottom picking.

Very low reward to risk.
Trade with momentum.


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## pixel (10 May 2011)

Just by sheer coincidence, I've stumbled across this somewhat controversial article:
http://www.incrediblecharts.com/sitemap.php?mgroup=162

The writer claims that setting a Stop Loss can significantly reduce a portfolio's profitability. Maybe he has a point - in the confines of his study's scope: $1M account, 2% position size, and entry/exit rule based on crossing the 60-day EMA. 

But read and think for yourselves...


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## skyQuake (10 May 2011)

> As traders, we shouldn't really focus on the return of each individual trade; rather we should focus on the overall return of our portfolio.




I stopped reading right there.

Yup let ur dogs run cause the portfolio is doing ok...
Thats just turning a blind eye!


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## pavilion103 (10 May 2011)

tech/a said:


> I would not be trading this your bottom picking.
> 
> Very low reward to risk.
> Trade with momentum.




I am short on this one in the practice sim. I entered on break of support (maybe could have waited for confirmation with this one).

How is it low reward to risk? Can you please explain what constitutes a high reward/risk trade? And how I might identify them.


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## Wysiwyg (10 May 2011)

Previously posted on ASF, this research piece on stop techniques and the implications of getting forecasts wrong. "The sequential nature of stop techniques" in Chapter 3 figure 6 shows an ideal implementation of buy stops, initial stop loss, protective profit stop and trailing stop.


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## tech/a (10 May 2011)

pavilion103 said:


> I am short on this one in the practice sim. I entered on break of support (maybe could have waited for confirmation with this one).
> 
> How is it low reward to risk? Can you please explain what constitutes a high reward/risk trade? And how I might identify them.




Sorry I thought you were long.
Disregard


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## pavilion103 (15 June 2011)

I was hoping for some opinions on this trade. I entered on the day after the highlighted bar (the first wide one) and you can see my initial stop at $0.39. 

So far the profit on this trade is 1.5R. Stop loss is 7.1% from entry price. Is the stop on this on ok? I put it here so that if it goes back below the line I am out. 

I am also trying to experiment with ways to enter some trades (if they look like good opportunities) with a tighter stop and higher R:R ratio. If I had entered the day before on the highlighted bar. My stop would have been around 3.7% from entry price. I would have made a nice little profit of 4R and could exit the position at the first sign of weakness. I certainly wouldn't enter most trades like this but if the opportunity arises is this wise?

What are people's thoughts?


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## Boggo (15 June 2011)

pavilion103 said:


> I was hoping for some opinions on this trade. I entered on the day after the highlighted bar (the first wide one) and you can see my initial stop at $0.39.
> 
> So far the profit on this trade is 1.5R. Stop loss is 7.1% from entry price. Is the stop on this on ok? I put it here so that if it goes back below the line I am out.




I use a similiar approach except that there is no really standard application of stops that fit all especially in the current market.
You've got the concept, its just what you are prepared to risk/lose that now determines the $ value of the stop bearing in mind that you don't want to really tight stops to accommodate account size or buy volume.
Look at the stop from a practical chart point of view and then see if it is going to be a trade that you can consider rather than deciding that you want to trade it and then trying to make a stop fit, you will cop a thousand small lashes that way.

My initial "look" at the chart of any candidate involves glancing at the low of the bar prior to the current bar (provided that its low is lower, if not then the bar before that) and then making a quick mental calc of whether its distance would be too expensive if it turns against me.
I seldom continue further with anything that involves double digit percentage stops.

Two examples that came up last night where I would apply this approach successfully are CPL and IMD.
Have a look at both of those and tell me what are your views or approach.

The main thing is that you have a known or planned loss figure that you are prepared to lose and in some cases you may be able to apply a target based on a previous and current pattern.
This is the case on two of my current holdings (ALK and ILU) where I know the stop and can reasonably predict a target.

Once they start moving in the right direction the next bit is when do you move the stop to the breakeven point ?


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## pavilion103 (15 June 2011)

Boggo said:


> I use a similiar approach except that there is no really standard application of stops that fit all especially in the current market.
> You've got the concept, its just what you are prepared to risk/lose that now determines the $ value of the stop bearing in mind that you don't want to really tight stops to accommodate account size or buy volume.
> Look at the stop from a practical chart point of view and then see if it is going to be a trade that you can consider rather than deciding that you want to trade it and then trying to make a stop fit, you will cop a thousand small lashes that way.
> 
> ...




Thank you for the insightful post. 

Taking the IMD example. If I was to trade this one I would do the following in the chart below. This is my dilema: I could put the stop loss at the swing low (8.5%) or under the low of the previous bar (6.28%). In this case I think I would favour the stop loss at the swing low (8.5%), which looks better from a technical point of view.
If price shot up the next day (hypothetical green bar) I would look to trail the stop immediately to at least the low of the previous bar (in orange). This would ensure that my maximum loss is only 0.6R (even if price traded above the blue without increasing significantly I would still move the stop from the 8.5% because any fall below the blue line would spell trouble)
If/when price closes above the green bar I would place the stop at around $2.20 just under the line, bringing it close to break even. 
What do you think of this example?
My number 1 goal is to reduce the amount of risk in play asap. 
My number 2 goal is to get the trade to break even asap. 

With CPL I am a little less sure because I haven't been trading many that break from a channel like this. I wouldn't take the trade with stop 1. Much too far away. Stop 2 looks better than stop 3 from a technical point of view but still a long way from price. If I was to trade with stop 2, I would want to trail to stop 3 in the next day or two. 
I am not overly confident thought because as I said I haven't traded many of these. 

(Charts below)

Can I please get your feedback on both of my analysis?


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## Boggo (15 June 2011)

pavilion103 said:


> Can I please get your feedback on both of my analysis?




All of you analysis is valid really imo, that is a bit of an easy answer though.
I base it on what is comfortable for you, your account, amount of account you are prepared to place at risk and with a wide stop is it really worth bothering with the trade at all.

In the case of IMD it really is range bound and still has a hurdle at the April high (which it failed at today) and support at around $2 over the same period.
To me it seems to be trying to break out of that range, the question is whether you are prepared buy in while it is range bound and top up when it breaks out or wait until it breaks out.
There seems to be strong support, some resistance and an overall trend to consider.

For me, patience, its on a short list with a few figures calculated but I want to see a more convincing attack on resistance at 2.27 with the support of a positive overall market.
There should now be a new short term support area forming around 2.10 to 2.12 which is a nice distance from the 2.27.

Having said all of that, if a few more better looking candidates appear over the next few days then this may get scrubbed as anymore that 6 to 10 are too hard to constantly monitor.

In the case of CPL personally I would just allot my normal max $ risk based on the stop being below the low of last Friday's (10th) bar. There is an obvious potential support area around 1.50 but to risk the same $ value is going to severely reduce the volume you can buy.

As you are aware there are no hard and fast rules really, just control the $ at risk and you live to fight another day.


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## Boggo (15 June 2011)

My Metastock system view of CPL.
Red line is trailing stop.

(click to expand)


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## tech/a (16 June 2011)

Pav
You seem to be improving nicley
Are you pleased with your understanding of analysis at this point?
What I like is your not wasting your time with superfluous analysis which has little or no bearing on a trades management.


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## breaker (16 June 2011)

so you would have been stopped out around 9 and 10 and up further


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## pavilion103 (16 June 2011)

tech/a said:


> Pav
> You seem to be improving nicley
> Are you pleased with your understanding of analysis at this point?
> What I like is your not wasting your time with superfluous analysis which has little or no bearing on a trades management.




I am content with where I am but far from satisfied. I've spent just on 450 hours working on it all. I'm not even thinking of going live yet (especially in this market!).
My first goal was to understand the mathematics/expectancy behind trading. To try to understand what it takes to be profitable. Now I've started trying to work out how to get there.
I'd say it's slowly coming along Tech. Rather than learning a whole bunch of stuff I've tried to focus. For example I've read "Master the Markets" 3 times and will continue to re-read it. 

I'm trading:
1.  A live simulator
2. I'm subscribed to The Chartist and putting their trades into another excel file and monitoring them
3. Going back over historical data and trading using 'bar replay' function
I am saving screenshots of all charts complete with analysis for periodic review. 

Other than that I have 2 books on the way from Amazon:
"Secrets For Profiting in Bull and Bear Markets" - Stan Weinstein 
"PPS Trading System" - Curtis Arnold

Enjoying it very much


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## pavilion103 (20 June 2011)

How does this one look (going back over historical data)? Entry on highlighted bar, initial stop at $3.27 (5.6% from entry).

If you notice in the below chart, the turqoise line represents 2xATR below current price. My stop is well outside of this. 
Does this indicate that despite 5.6% looking like a reasonable number, that in this case, for this stock it is far too wide?
Would the level at $3.34 be a more sensible stop?


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