# Stop-Loss strategies



## shaunm (11 January 2008)

I was wondering how people set their stop-loss strategies?
I have been doing mine around 10% or less and have been getting sold. I guess in the recent market conditions this is now more likely anyway.
Your thoughts are welcome.


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## sutti (11 January 2008)

I usually set mine at around 20% for short term investments.


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## nizar (11 January 2008)

shaunm said:


> I was wondering how people set their stop-loss strategies?
> I have been doing mine around 10% or less and have been getting sold. I guess in the recent market conditions this is now more likely anyway.
> Your thoughts are welcome.




I set my initial stop at 15%.
But my system works equally well without an initial stop, its only there for position sizing purposes.


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## tech/a (11 January 2008)

nizar said:


> I set my initial stop at 15%.
> But my system works equally well without an initial stop, its only there for position sizing purposes.




Your kidding arent you?



> I usually set mine at around 20% for short term investments.




So you need a 20% rise to have a 1:1 R/R
Your kidding as well surely!



> I have been doing mine around 10% or less and have been getting sold.




Whats your R/R on your methodology with your 10% stop?
Whats your average trade length?
Whats you longest string of losses?
How do you position size ? Fixed fractional----guess?
Whats your win loss ratio?
Whats your average win to average loss?
Whats your average time in a trade?
What makes you think that failure is due ONLY to the position of your stop?


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## professor_frink (11 January 2008)

shaunm said:


> I was wondering how people set their stop-loss strategies?
> I have been doing mine around 10% or less and have been getting sold. I guess in the recent market conditions this is now more likely anyway.
> Your thoughts are welcome.




Generally based around a pivot low point for longs and a recent pivot high for shorts. For trading stock, then base position size off the difference between entry and stop level. For my futures trading, amount of contracts traded is more based on trading 1 contract per $xx in capital to limit the overall leverage I use(can vary quite a bit between instruments based on size of the contract, timeframe involved and the general volatility of the product traded).

I'm not really a huge fan of using an arbitrary % move against the position- it has the potential to be a little excessive in low volatility environments, and can also be too tight when vols pick up, depending on the figure used, and style of trading employed. Though I'm sure there are quite a few people that would disagree with me here.


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## rowes (11 January 2008)

professor_frink said:


> Generally based around a pivot low point for longs and a recent pivot high for shorts.
> 
> I'm not really a huge fan of using an arbitrary % move against the position- it has the potential to be a little excessive in low volatility environments, and can also be too tight when vols pick up, depending on the figure used, and style of trading employed. Though I'm sure there are quite a few people that would disagree with me here.




I agree.

I use candlesticks which have there own way of determining a stop position as opposed to a percentage. For me they have worked extremely well.


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## wayneL (11 January 2008)

professor_frink said:


> Generally based around a pivot low point for longs and a recent pivot high for shorts. For trading stock, then base position size off the difference between entry and stop level. For my futures trading, amount of contracts traded is more based on trading 1 contract per $xx in capital to limit the overall leverage I use(can vary quite a bit between instruments based on size of the contract, timeframe involved and the general volatility of the product traded).
> 
> I'm not really a huge fan of using an arbitrary % move against the position- it has the potential to be a little excessive in low volatility environments, and can also be too tight when vols pick up, depending on the figure used, and style of trading employed. *Though I'm sure there are quite a few people that would disagree with me here.*



Not I.

This is the most logical technical method IMO as well.


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## Timmy (11 January 2008)

A stop loss is tough love.

Setting and managing the stop loss  ... can of worms ...

FWIW I use the stop loss as a *worst-case scenario* - what this means is when I am in a trade I do not wait for the stop loss to be hit to prove to me that I was wrong on that trade.  Instead I need the price to move in my favour to prove to me that I am right on the trade.  If the price is moving to show me I am in the right position then my stop is closed up towards breakeven, and then to breakeven, ASAP (if not sooner...).

If the price does not move in my favour quickly then I will not hold the trade, I am out and the stop is cancelled (don't forget to do this).  How quick does the trade need to move in favour?  Well, that's one can of worms, I don't have a definitive answer, its going to depend on your own trading experiences/plan.


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## wayneL (11 January 2008)

Timmy said:


> ....then I will not hold the trade, I am out and the stop is cancelled (*don't forget to do this*).




How many of us have learned this the hard way? LOL


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## professor_frink (11 January 2008)

wayneL said:


> How many of us have learned this the hard way? LOL


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## tech/a (11 January 2008)

While I dare not disagree -------.
The question then begs which pivots.
Major pivots
Moinor Pivots.
Intermediatary.
Any pivot.

I dont know how anyone can be definative with a stop---and there are 100s without reference to the trading methodology adopted by the trader.
One size fits all doesnt cut it! 

In my not so humble opinion.


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## MS+Tradesim (11 January 2008)

I use a multiple of the ATR of the median price. A larger multiple for long-term, a smaller multiple for short-term.

tech/a wrote:


> I dont know how anyone can be definative with a stop---and there are 100s without reference to the trading methodology adopted by the trader. One size fits all doesnt cut it!




Ain't that the truth!

(bad sp. intended)


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## Timmy (11 January 2008)

tech/a said:


> While I dare not disagree -------.
> The question then begs which pivots.
> Major pivots
> Moinor Pivots.
> ...




Which indeed? I don' t think anyone would disagree.



tech/a said:


> there are 100s without reference to the trading methodology adopted by the trader.
> One size fits all doesnt cut it!




I don' t think anyone would disagree.



tech/a said:


> In my not so humble opinion.




I don' t think anyone would disagree.


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## Timmy (11 January 2008)

What 'pivot' to use as a stop?

Using VSA principles/Wyckoff principles, a sensible pivot to use as an initial stop loss price (on a long) could be below the low of a test after a sign of strength (given the background supports taking a long position).


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## wayneL (11 January 2008)

tech/a said:


> While I dare not disagree -------.
> The question then begs which pivots.
> Major pivots
> Moinor Pivots.
> ...



If you know what sort of trend it is you're trading (a swing is still a trend) and exit the strategy, it's kinda obvious in 80-90% of cases. The remainder is a case of eanie meanie minee moe (with a dose of money management thrown in, just for sh!ts and giggles).  </flippant>


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## kingie_d (19 January 2008)

I agree with Wayne and Fink and the other people who use the pivots as their initial stop. As to the question of which pivot point I think that depends on your time frame (here's your cape Captain Obvious). 
My question to everyone is: _What do you use as a trailing stop?_ Do you wait for the next pivot (and maybe pyramid into a winning trade?...) then use that as your stop? What about indicators? Moving average crossovers? ATR? Countback line?
I've been using the pivot as the initial stop then going to 2 x ATR when it is in my favour then tightening it even further to 1 x ATR when the price closes a couple of days in a row outside the ATR Bands? But thats me and I'm more interested in short to med term trades than long term stuff...


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## Kauri (19 January 2008)

What's a stop???    Is that where you average down
Cheers
..........kauri


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## ecfutures (20 January 2008)

I would rather set my cut-loss point a tick lower at recent low or recent high once i entry market (either long /short). After the price soar to some certain level then only we find out the trailing stop. Once trailing stop triggered, turn short again. Just holding position all the time & success always by your side.


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## happytrader (22 January 2008)

Hi Shaunm

I am a short term derivatives or leveraged trader and the very best advice I can offer you is this, 'as soon as it goes the wrong way get out' The wrong way is when a share losses 3% of its value or the option loses 15 to 20% of its value. This is why you really need to be extremely specific with entries and timeframe.

This is much easier to do if you never allow yourself to entertain a 'victim' mindset. 

Cheers
Happytrader


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## maxx122 (22 January 2008)

My Stop Loss Strategy is to never risk more than 5% of your capital in a trade.


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## barnz2k (23 January 2008)

How exactly do you setup a stop loss? I know I should really have had these set up long ago, but as a long term investor I hadn't really planned to sell at all.

Say I buy stock X at $3, I want to set a stop loss at $2.6 - so that if the stock drops to $2.6 I want to sell, but do I set a range? cause if it drops hard to $2 maybe I dont want to sell? Is this when people say it slips past their stop?
And as the share moves up to $3.4, can I move my stop up?

Also, is it possible to set a future stop? Say I think the stock will peak around $4, and then possibly slide back, but its currently $3.6, can I set like a statement, if X gets to $4 set stop loss $3.8, opposed to a sell at $4 incase it continues.


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## barnz2k (23 January 2008)

Or does it all work on %s that change with the price?


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## kolonel (29 January 2008)

barnz2k said:


> How exactly do you setup a stop loss? I know I should really have had these set up long ago, but as a long term investor I hadn't really planned to sell at all.
> 
> Say I buy stock X at $3, I want to set a stop loss at $2.6 - so that if the stock drops to $2.6 I want to sell, but do I set a range? cause if it drops hard to $2 maybe I dont want to sell? Is this when people say it slips past their stop?
> And as the share moves up to $3.4, can I move my stop up?
> ...




I take it with the ablove approach, you are either sitting in front of the screen all day, or would you guys set a conditional stop with your broker ?

Or is there a program that can manage the whole lot, that is, in regards to setting exits and stops ?

Regards
kolonel


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## Timmy (31 January 2008)

This is not mine, I found it somewhere and it speaks to me.

--------------------

Also here's a general rule for those that find themselves slowly being bled to death by stops. Don't let them get hit. First two bars that close against you get out (if your first profit target is not reached). Or, first wide bar against you get out (if your first profit target is not reached). Something to think about...

This is just a general rule, but try the exercise. Think of your stops as insurance... try to prevent the problem before it happens though (meaning, if the pattern is wrong, get out, don't wait for your house to burn). 

--------------------


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## CFD (31 January 2008)

Must be fun the last 2 days. If you were short yesterday the market went up first taking out the stops before going down, and if you were long today the market took off south a long way before turning up.


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## barnz2k (31 January 2008)

So how do I actually set the stop losses? Is it simply a feature somewhere in my trading account? (st george)


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## Timmy (31 January 2008)

barnz2k said:


> So how do I actually set the stop losses? Is it simply a feature somewhere in my trading account? (st george)




Sorry I don't know how the St George system works - best to check with them directly.


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## Timmy (31 January 2008)

CFD said:


> Must be fun the last 2 days. If you were short yesterday the market went up first taking out the stops before going down, and if you were long today the market took off south a long way before turning up.




Hi CFD - I assume your post is in response my post about the "burn the house" stops, and by implication you are saying that the stop loss philosophy is often not the answer to profitable trading, especially on days as you describe.  If my assumption is wrong, apologies.  

You are right; the stop loss philosophy is only one question that needs to be answered; tech/a asked some very pertinent questions in post 4 of this thread that address more fully the whole trade entry and exit process.  A great number of the trading-related posts on this forum attempt to answer one or more of his questions, and others.  My post was limited to addressing the stop loss philosophy or strategy only, and was more in response to shaunm's opening post than the recent posts.


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## CFD (1 February 2008)

Hi Timmy. I was not having a go at your post, just the market of late. I liked post #14 (yours) in that you have to understand the move you are going to trade, to know when the move would have broken down.


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## Chorlton (1 February 2008)

tech/a said:


> While I dare not disagree -------.
> The question then begs which pivots.
> Major pivots
> Moinor Pivots.
> ...




Tech,

Surely it doesn't matter as long as the chosen one has been backtested and proved to be the most beneficial?

With regard to the system I am developing, although it is a long-term system, I have found a stop based on previous low to be more beneficial than say a wider stop such as an ATR or MA.

I should also add that the same stop is used for my trailing stop as well.....

Chorlton


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## CFD (1 February 2008)

I assumed it would be which ever pivot moves you were trading.


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## howardbandy (2 February 2008)

Greetings all --

Whatever method was used to enter a position, there are about five methods to exit it:

1.  A signal.  Perhaps the same system with the same parameter values that caused the entry, but in the opposite direction.  Perhaps the same system with different parameter values.  Perhaps a completely different system.

2.  A profit target.

3.  A timed holding period.

4.  A trailing stop.

5.  A maximum loss stop.

Generally, one of the first three methods works best for trades that are held a short time -- a few days or at most a few weeks.  

A trailing stop can be a good exit for use with a trend following system.  The parabolic stop and the chandelier stop both work well.

A maximum loss stop is not a reason to sell.  It is insurance against a disaster.  

All exits must be tested and all must individually pass tests of validation.   That means that all exits must occur often enough for meaningful statistics to be gathered.

In general, stops hurt systems.  My advice is to design your trading systems so that the exit is caused by a signal from your system rather than by an adverse price movement hitting a stop.

Thanks for listening,
Howard


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## stockwhizben (3 February 2008)

Guys can i ask a question I just want to make sure of. It will sound stupid so wont waste your time, a yes or no will suffice.

Say I want to go short and want to do a stop loss. I sell the stock at $10. I do a stop loss in the system at $12 or something like that dont I? Exact opposite to going long.

thanks, Ben


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## Sir Burr (3 February 2008)

stockwhizben said:


> Exact opposite to going long.




Yes :kiffer:


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## stockwhizben (3 February 2008)

thanks!!


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## howardbandy (4 February 2008)

stockwhizben said:


> Guys can i ask a question I just want to make sure of. It will sound stupid so wont waste your time, a yes or no will suffice.
> 
> Say I want to go short and want to do a stop loss. I sell the stock at $10. I do a stop loss in the system at $12 or something like that dont I? Exact opposite to going long.
> 
> thanks, Ben




Hi Ben -- For just the initial entry and stop loss portions of your short position, the orders you give your broker will be something like this:

To establish your short position, selling at $69 or any price higher:
Sell to open (or short) a short position, 100 shares BHP at $69 or better, limit, day order.

To close your short position when it is losing and you have set your stop loss at $72:
Buy to close (or cover) a short position, 100 shares BHP at $72, stop, good until canceled.

In addition, if you have a profit target of $65, the order you enter to cover at $65 or lower is something like this:
Buy to close (or cover) a short position, 100 shares of BHP at $65 (or better), limit, good until canceled.

If you are placing orders by telephone, check with your broker for the exact wording he or she wants to hear, and the exact sequence to give the components of your order.  Then make up a form with "fill-in-the-blanks" and read from it when talking to your broker.  Of course, if you are entering orders on a computer screen, just fill in those blanks.

Thanks,
Howard


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## meganut (12 February 2008)

wayneL said:


> How many of us have learned this the hard way? LOL



 What do you mean by this?

I'm a newbie!


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## Trembling Hand (12 February 2008)

meganut said:


> What do you mean by this?
> 
> I'm a newbie!




Forgetting to cancel a stop loss order when you close out a position. Then it later gets triggered opening you a new position in the opposite direction of the original holdings. 

Its funny when it happens and makes you money.


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## Aviator33 (12 February 2008)

Trembling Hand said:


> Forgetting to cancel a stop loss order when you close out a position. Then it later gets triggered opening you a new position in the opposite direction of the original holdings.
> 
> Its funny when it happens and makes you money.




Did my first the other day - and it wasn't funny


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## meganut (12 February 2008)

Timmy said:


> This is not mine, I found it somewhere and it speaks to me.
> 
> --------------------
> 
> ...



 Can you elaborate on this more for us newbies please Timmy?

And I just love examples for my simple noggin.


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## wayneL (13 February 2008)

Trembling Hand said:


> Forgetting to cancel a stop loss order when you close out a position. Then it later gets triggered opening you a new position in the opposite direction of the original holdings.
> 
> Its funny when it happens and makes you money.




Funnily enough, I'm in profit overall on the "forget to take your stop off" strategy. But of course, pure luck and *way* too scary.


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## meganut (14 February 2008)

Trembling Hand said:


> Forgetting to cancel a stop loss order when you close out a position. Then it later gets triggered opening you a new position in the opposite direction of the original holdings.
> 
> Its funny when it happens and makes you money.




Please forgive me but I'm still not getting this, if you close out a position (ie. sell your shares) how can the stop loss get triggered (as in sell something you have already sold) and open a new position.

I need another more detailed example please.


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## prawn_86 (14 February 2008)

meganut said:


> Please forgive me but I'm still not getting this, if you close out a position (ie. sell your shares) how can the stop loss get triggered (as in sell something you have already sold) and open a new position.
> 
> I need another more detailed example please.




Ok MN i'll try my best.

Using round, unrealistic figures for ease. 

You buy X shares at $1.10, with a stop at $1. The price rises and you sell your full amount of X at $1.50 (or whatever). You dont take your stop out for selling those X shares at $1.

the SP then falls to $1 and the system will automatically sell (or open up a short position) for those X amount of shares from originally.

So by leaving your stops in, if they get hit, you will take an opposite position to what you originally had.


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## chops_a_must (14 February 2008)

meganut said:


> Please forgive me but I'm still not getting this, if you close out a position (ie. sell your shares) how can the stop loss get triggered (as in sell something you have already sold) and open a new position.
> 
> I need another more detailed example please.




Say when trading futures, you manually close out your trade, but your stop is still active if you don't cancel it. So effectively you get a reversal of your trade at the original stop price.

I've done this a couple of times... and get paranoid that someone is watching what I am doing from a distant computer laughing at me! Lol! 

I've learnt to adjust the stop from the bracket orders, rather than have a new order.


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## Trembling Hand (14 February 2008)

Most day traders trade with bracket orders.

That is when they buy something at say $10 you then put in a sell order at your profit target say $11. But also a linked stop loss order to sell if your stock falls below $9.50. What happens is that if your target order is hit @ $11 your stop order is automatically canceled. Or your target order is cancelled if you stop loss order is triggered.

But some times if you are not using linked orders or One Cancels the other when your target is hit you sell out but forget to cancel the stop order at $9.50.Then the stock falls back to $9.50 and triggers the forgotten order you are now short the stock that you were just long.


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## Aviator33 (14 February 2008)

meganut said:


> Please forgive me but I'm still not getting this, if you close out a position (ie. sell your shares) how can the stop loss get triggered (as in sell something you have already sold) and open a new position.
> 
> I need another more detailed example please.




Not sure how the other guys make the mistake but for me:

Once I enter a position I create an OCO (order-cancels-oder) pair. So for example (forget risk management, keep it simple), say I buy a stock at $10:

I create a take profit (sell order) at $11
I create a stop loss (sell order) at $9

So with an O-C-O, once one order triggers it cancels the other. But things change, I forget to adjust my stops and just decide on the spur of the moment to sell and get out. Only problem is, my OCO orders are still in the system to Sell (short) at $11 and sell (short) at $9. Price rises to $11, triggers my order and BAM! I'm in the stock at $11.

Clear as mud? 

Cheers
AV

p.s. WOW looks like 3 others beat me to it! Why don't we have a life outside of ASF?


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## Trembling Hand (14 February 2008)

That shoud do it boys. I was a bit to slow :


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## Trembling Hand (14 February 2008)

Aviator33 said:


> p.s. WOW looks like 3 others beat me to it! Why don't we have a life outside of ASF?




Where is your Valentine's??


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## Aviator33 (14 February 2008)

Trembling Hand said:


> Where is your Valentine's??




HAHAHAHAHA, very good TH. But we celebrate "V" day on the 15th. Don't ask me why, something about not being so comercial, I just nod and say "yes dear". Plus she's on night shift...so what's your excuse? :

Cheers
AV


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## prawn_86 (14 February 2008)

Trembling Hand said:


> Where is your Valentine's??




Mine is watching Lost. 

I cant stand that show


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## Aviator33 (14 February 2008)

prawn_86 said:


> Mine is watching Lost.
> 
> I cant stand that show




***GROAN****

I second that Prawn


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## chops_a_must (14 February 2008)

Trembling Hand said:


> Where is your Valentine's??




I can't afford to have one, and trade.


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## Aviator33 (14 February 2008)

chops_a_must said:


> I can't afford to have one, and trade.




LOL, I hear ya. Got to get "creative" this year....

Cheers
AV


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## Trembling Hand (14 February 2008)

chops_a_must said:


> I can't afford to have one, and trade.




What do you mean, I need a girl.
At least there will be one in the house with money at the end of the week.


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## julius (15 February 2008)

Do you guys use a front end for IB ?


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## Trembling Hand (15 February 2008)

Ninja Trader for charting and watch list etc.
IB clunky old DOM for executions.


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## julius (15 February 2008)

What's DOM?


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## Trembling Hand (15 February 2008)

Depth Of Market. TWS book trader.


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## julius (16 February 2008)

ah i see ...

I just want somthing that will place entry, stop, and profit target all in one go. 

all the right clickin in TWS is driving me nuts


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## Trembling Hand (16 February 2008)

julius said:


> ah i see ...
> 
> I just want somthing that will place entry, stop, and profit target all in one go.
> 
> all the right clickin in TWS is driving me nuts




Use the DOM with a Bracket order.


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## Timmy (16 February 2008)

meganut said:


> Can you elaborate on this more for us newbies please Timmy?
> 
> And I just love examples for my simple noggin.




Sorry mnut - missed this one.  What is said in the quote in that post ties in with my first post in this thread, it is more about the philosophy on the purpose of a stop loss.

I think most use a stop loss as a 'set-and-forget', that is, I have set my stop loss at $x.xx, now I will let the market do its thing and see what happens (if the price gets to $y.yy I will move my stop loss up, and so on).  So, if a share (or CFD, future, whatever) was bought and it fails to rally from the buy price and starts to trade opposite to what I thought that is ok because my stop loss is there as protection.  When the share falls to my stop-loss that 'proves' that buying the share was the incorrect thing to do and so the position is exited.

What I am saying is do not use this philosophy.  

By all means set a stop loss upon entry.  But then, if the share that has been bought fails to rally from the buy price and starts to trade opposite to what it 'should' be doing - get out, don't wait for the stop to be hit - the price must move to show that the idea of buying the share was right, the share price move must 'prove' that buying the share was the right thing to do. (this is the opposite to waiting for the share price to prove that you were wrong).

Now, this philosophy will not work with all approaches - how do you back-test such an idea - I don't think you can.  So those that do extensive back-testing and model design and then trade those models will not use this approach. 

What about fundamental/value traders/investors?  I don't think they can use this approach either.  If a share is bought because it represent great value then any further price fall, with no observable change in the fundamentals, means the share is even better value now, right?  On the other hand, if an observable change in the fundamentals show that the share is no longer good value then the share will be sold, rather than waiting on a stop to be hit.

The philosophy is also not written in stone - many will disagree with it.

Hope that helps (clear as mud?)


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## chops_a_must (16 February 2008)

Trembling Hand said:


> What do you mean, I need a girl.



What are you thinking? :


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## meganut (17 February 2008)

prawn_86 said:


> Ok MN i'll try my best.
> 
> Using round, unrealistic figures for ease.
> 
> ...




Thanks for the great replies guys, I know you can sell a CFD when you really don't have them but I thought with shares you have to have a registered holding in a CHESS account in order to sell some shares, hence if you already sold them or can they work just like a CFD trade but in reverse if you leave the stop in place?
I think my head is about to explode!!


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## meganut (17 February 2008)

Timmy said:


> Sorry mnut - missed this one.  What is said in the quote in that post ties in with my first post in this thread, it is more about the philosophy on the purpose of a stop loss.
> 
> I think most use a stop loss as a 'set-and-forget', that is, I have set my stop loss at $x.xx, now I will let the market do its thing and see what happens (if the price gets to $y.yy I will move my stop loss up, and so on).  So, if a share (or CFD, future, whatever) was bought and it fails to rally from the buy price and starts to trade opposite to what I thought that is ok because my stop loss is there as protection.  When the share falls to my stop-loss that 'proves' that buying the share was the incorrect thing to do and so the position is exited.
> 
> ...




Yeah great reply Timmy, the mud is getting clearer but I am really having trouble getting my head around the stops getting hit thing then buying you in in the opposite direction, man lucky I have started off small and not jumped in with both feet!


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