# Stop Loss Question



## stargazer (20 October 2006)

Hi

If i buy a stock xyz at say $2.00

Stop loss on it at say $1.80

Nest day stock xyz  opens at $1.65  Does it get sold?

Cheers
SG


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## Realist (20 October 2006)

Once it hits $1.80 or lower it gets put on the market.

If it opened at $1.65 and there was a buyer at $1.65 then yes it would be sold for $1.65


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## Route 66 (20 October 2006)

stargazer said:
			
		

> Hi
> 
> If i buy a stock xyz at say $2.00
> 
> ...




Not necessarily stargazer ---- is that $1.80 your trigger or limit price for the stop loss order?

If your trigger price for the stop loss is $1.80 but your limit price is for example, $1.70 then your stop loss order would have placed a sell order at $1.70 and it will stay there until buyers bid up to $1.70+ or until the order expiry date.

With a trigger price of $1.80, your sell order would only be executed on market open if your limit price was at or below $1.65


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## stargazer (20 October 2006)

Hi 

Thanks for yor replies although i am not quite clear on trigger and limit.  On E Trade they call it a conditional order with a whole host of variations.

What i am trying to achieve is:

I want the stock to be sold at $1.80 not lower than this.

From waht you are saying if it opened at $1.65 it would be put on the market which is not what i want that would be at market wouldn't it?

So how does one protect themselves from the stock being sold below the $1.80.

Hope that makes sense.

Cheers
SG


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## Realist (20 October 2006)

stargazer said:
			
		

> I want the stock to be sold at $1.80 not lower than this.




You can not do this sorry.  You either sell at the market price or you hold.

Say it closes at $2.00 on Monday afternoon.  You do not want to sell so you've held it.

Then overnight there is terrible news, the stock may open on Tuesday morning at $1.20 and fall further from there over the next few weeks.

In this case you can not sell at $1.80.  No buyers obviously.

And according to the theory of using stop losses you need to sell at $1.20 before you lose anymore.


Stop losses don't stop losses - they just reduce them.

Triggering the sale in the case abovce at $1.20 may be a good move. And it is your only choice.


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## stargazer (20 October 2006)

Great thanks Realist its clear to me now.

Cheers
SG


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## GreatPig (20 October 2006)

Realist said:
			
		

> You can not do this sorry.



You can on Etrade.



> This Conditional Order is for a stock falling in price. When the Trigger Price is reached, we will vet your order and place an order to market for you. ... The order will not trigger if the stock price remains above the set Trigger Price. As part of this example *you can also set a Lower Limit Price. If the price reaches or passes the Lower Limit then your outstanding order will not be triggered*.



GP


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## Realist (20 October 2006)

GreatPig said:
			
		

> You can on Etrade.
> 
> 
> GP





Please explain using the scenario I used.

$2.00 to $1.20 overnight.

How you can sell at $1.80??


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## bluebell (20 October 2006)

stargazer said:
			
		

> Hi
> 
> Thanks for yor replies although i am not quite clear on trigger and limit.  On E Trade they call it a conditional order with a whole host of variations.
> 
> ...




With commsec you set up a conditional stop loss order of which there are a few variations.

In this case set the trigger price at or above $1.80 and your limit price at $1.80

As soon as as a transaction is done at your reigger price the conditional order is then triggered and places a sell order into the market like normal at whatever your limit price is.  This sell order is then treated just like any other normal sell order in the market.

eg....

Share price is currently at 1.95

Trigger = 1.85

Limit = 1.80

So as soon as the share price reaches 1.85, your sell order at 1.80 is then put in the market.

In rapidly falling stocks, say after your trigger is executed  at 1.85 but the next transaction is at below your limit of 1.80 then your order will stay in the market and you have to hope the share price comes back up to 1.80 b4 the order's expiry date or you can lower your sell limit.

So in this example, when the share price hits 1.85 your sell order at 1.80 is placed in the market.  If the next transaction is below 1.80 (say 1.65 as your scenario) then your sell IS NOT EXECUTED and you'll have to wait for the share price to come back up or you can amend your sell limit lower.

But if after your trigger places your sell order at 1.80 in the market the next transaction is at 1.83 then more than likely your order will be included in that transaction and your shares would have been sold for 1.83 instead of 1.80


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## MichaelD (20 October 2006)

stargazer said:
			
		

> What i am trying to achieve is:
> 
> I want the stock to be sold at $1.80 not lower than this.
> 
> ...



This is an extraordinarily dangerous way to use a conditional stop loss.

The scenario;

You buy xyz at $2.
You put a conditional stop loss trigger at $1.80 with a limit of $1.80.

The next day the stock trades at $1.65. Your order does not execute.
The next day the stock trades at $1.45. Your order does not execute.
The next day the stock trades at $1.00. Your order does not execute.

You've just turned a 10% loss into a 50% loss.


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## bluebell (20 October 2006)

MichaelD said:
			
		

> This is an extraordinarily dangerous way to use a conditional stop loss.
> 
> The scenario;
> 
> ...




yes, setting the trigger and limit to the same value does increase your chances of your sell order to not be executed.  But in a slowly declining stock in most cases it probably would still be executed.

That's why it's a good idea to set your sell limit a few ticks below your trigger price to increase the cjances your sell goes through and with a slight chance you might be lucky to eventually sell at aprice somewhere in between your sell and trigger values.

The sell limit is the absolute minimum your shares will be sold at and you always have the option to move the sell limit down in a rapidly falling stock if you like.


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## kaveman (20 October 2006)

Why have a stop loss if you are not going to use it?


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## GreatPig (20 October 2006)

Realist said:
			
		

> How you can sell at $1.80??



No, of course you can't have it sell at $1.80, but if it's below the limit price, it won't sell at all.

GP


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## Realist (20 October 2006)

GreatPig said:
			
		

> No, of course you can't have it sell at $1.80, but if it's below the limit price, it won't sell at all.
> 
> GP





Which defeats the whole purpose of a stop loss.


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## GreatPig (20 October 2006)

Well that's when you go WTF and turn your stop/loss strategy into a DCT (AIM) one and buy more shares instead 

GP


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## tech/a (20 October 2006)

You dont set a limit on a stop loss its called slippage.


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## pacer (20 October 2006)

I use E-trade too.....was real biach trying to work out how it all worked when I first got on, as the help page is absolute crap....you'd think they would give detailed instructions!!!!!!!!......w%&*ers!!!!!!!!!!!!!!!!!

Now a slightly different question...I notice that occasionaly the bars on the graph go massively up/down occasionaly during the day, within a minute......I haven't seen it live, and wold like to see the bid/offer side when it happens but ....is this a stop-loss hit or a mistake.......

I want to know if my stop will be hit, with this anomally.....

I love this site...the best there is...and good people willing to share info.....


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## bluebell (20 October 2006)

Realist said:
			
		

> Which defeats the whole purpose of a stop loss.




I think you are struggling with the concept of stop losses, trigger and limit prices and their variations.

No broker that provides conditional orders services will guarantee that all stop loss orders will be executed, especially in extreme cases when stocks plunge rapidly as per your example.

But the vast majority of price movements are fairly orderly and so conditional orders provide an automated means to cut losses or lock in profits and so are especially useful when someone is not able to watch the market closely.

I agree with GP because you can do it on commsec as well.


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## pacer (20 October 2006)

But is it just an anomaly on the graph or a genuine hit on the stop loss's...this is e-trade...is it just an anomoly on etrade or do all sites take a hit at the same time....I'm talking HUGE jumps of 2-15% then revert to thier origional price!....if you don't use etrade you may not have the answer I'm looking for....

thanks anyway


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## Dutchy3 (20 October 2006)

Over the years I've kept the records of stocks that I have been STOPPED out of. As I take positions on margin on any number of occassions had I not exited at my stop I'd be out of this game ....

As I am wrong a good %age of the time STOP's have allowed me to surrive and prosper ... these days it simple is not an issue. If I'm wrong I'm wrong ... I'm just not passionate about dying on anyone elses hill ... get out and live and learn


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## pacer (20 October 2006)

Still not the right answer!....come on someone must know!


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## Red-Devil (20 October 2006)

tech/a said:
			
		

> You dont set a limit on a stop loss its called slippage.





*slippage or trigger price doesn't matter - 2 different names for the same thing*.

commsec stop loss inputs ask for a trigger price and limit price as inputs.


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## wayneL (20 October 2006)

pacer said:
			
		

> Still not the right answer!....come on someone must know!




Could be a dirty tick pacer.

Just a mistake in the data transmission, it happens all the time.


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## cuttlefish (20 October 2006)

If you've got the opportunity to use a discretional approach then GP's approach can work i've found - i.e. trigger hit - set limit order rather than market order - if lucky the market will come back up and take out your your stop a lot of the time.  Should still have a money management limit where you cut regardless.  I think this approach can help to protect against stop farming and also protects against hitting the bid rather than sitting at the top of the offer queue.


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## GreatPig (20 October 2006)

cuttlefish said:
			
		

> then GP's approach can work



It's not my approach. I just stated what Etrade allows.

Cheers,
GP


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## cuttlefish (21 October 2006)

Sorry GP - I recalled you saying once that on stops you don't always just selll at market but will put a limit on them sometimes. I've tried both and think that the limit approach can work on a discretionary basis depending on volatility.


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## GreatPig (21 October 2006)

cuttlefish said:
			
		

> I recalled you saying once that on stops you don't always just selll at market but will put a limit on them sometimes.



Okay, I think we're getting a bit mixed up here.

I've never used automatic stop/loss orders, but do typically buy & sell shares at limit rather than at market. But that's a different "limit" to the one used with stop/loss orders (at least I think it is).

Cheers,
GP


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## maffu (21 October 2006)

Comsecs Conditional Trading Fee's are:

   1. You can elect to pay an "Up front" Conditional Trading fee of $9.95^ plus standard brokerage if your order trades. You pay the "Up front" fee regardless whether your order trades; or
   2. You can choose to pay "On execution" of the order and only pay $14.95^ plus standard brokerage when an order trades. You do not pay the "On execution" fee if no part of your order is executed.

Is this a similar pricing structure to other brokers?
Im yet to use Stop Losses but understand the value of using them, im guessing that the On Execution fee's while more expencive I will use less so will be the cheaper option. What choice do the rest of you make?


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## stargazer (21 October 2006)

Hi

Gee and i thought i was clear well clearer perhaps.
Just to recap from waht other posters have contributed:

XYZ bought at 2.00

Trigger:   1.85

Limit:     1.80

next day opens at 1.65

During the day reaches 1.80 is then sold (Is this correct)

Stock continues to 2.10

Now is stock sold only when the price is coming down or is it sold even if it comes from a position of lower than the limit price.

I am with E trade 
Pacer do you use the pro version which i tink you get free if you trade enough douring the month.  OR

The standard one which seems to have basic capabilities that i am aware of anyway.

Cheers
SG

cheers
SG


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## cuttlefish (21 October 2006)

Pretty sure the rules are straightforward (I use comsec not etrade but should be the same). Any trade that occurs at a price below the stop loss trigger price will cause a sell order to be placed - and it will be placed at the specified limit (not the trigger price but the limit price).  The order will then remain there unless filled or manually cancelled.

So if it gapped down below both the stop loss price and the limit price - the order would be placed (because the stock traded below the stoploss trigger price of 1.85). The placed order would be at the limit price (i.e. sell at 1.80) and will remain there until filled or manually cancelled - so yes if the price starts to move up again and reaches 1.80 the order will be executed unless manually cancelled in the meantime.


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## alankew (31 October 2006)

Variation on the stop loss question.The last couple of days i ahve been stopped out of KZL and ZFX which i am dissapointed about as its pretty obvious they are going to carry on going up for a while yet.I bought both via CFDs and the prices i paid were ZFX  3 lots at 14.12,14.70 and 14.76 and also KZL at 6.83,6.87,and 6.90.The ZFX got stopped at open today at 15.02 and KZL at 7.50.I trailed up my stop but does anyone think i could have played it differently.In particular i think i should have removed the stop on ZFX until the opening had settled down.Still made decent money but whats your opinion?


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## Space Cadet (31 October 2006)

stargazer said:
			
		

> Hi
> 
> Gee and i thought i was clear well clearer perhaps.
> Just to recap from waht other posters have contributed:
> ...





"During the day reaches 1.80 is then sold (Is this correct)"

yes this is correct - the share price can bob up and down like that proverbial cork in the ocean as much as it likes below 1.80, but if that cork manages to bob up to 1.80 then the sell order will be executed, provided of course that there is sufficient buyer volume to reach your order in the queue at 1.80.

If the cork rises above 1.80 then your order is definitely executed regardless of where it is in the queue at 1.80


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## Realist (31 October 2006)

alankew said:
			
		

> Variation on the stop loss question.The last couple of days i ahve been stopped out of KZL and ZFX which i am dissapointed about as its pretty obvious they are going to carry on going up for a while yet.I bought both via CFDs and the prices i paid were ZFX  3 lots at 14.12,14.70 and 14.76 and also KZL at 6.83,6.87,and 6.90.The ZFX got stopped at open today at 15.02 and KZL at 7.50.I trailed up my stop but does anyone think i could have played it differently.In particular i think i should have removed the stop on ZFX until the opening had settled down.Still made decent money but whats your opinion?




Trailing stop losses will often pull you out of good trades.

They'll save your ass on bad trades though.

I choose not to use them.

Others always use them.

All I can say is keep a tab of how your stops go, and adjust your strategy accordingly. They sound too tight to me though.


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## alankew (31 October 2006)

Realist thanks for the reply..Dissapointed to get stopped out but i did make pretty good money.What price do you think they should have been at,and by the way get packing and watch out for those POMs,England is full of em(Im one)


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## Realist (1 November 2006)

alankew said:
			
		

> Realist thanks for the reply..Dissapointed to get stopped out but i did make pretty good money.What price do you think they should have been at,and by the way get packing and watch out for those POMs,England is full of em(Im one)





Hmm I've got alot of packing to do, I fly out today!!   

RE: stop losses, All I'd say is don't just stop yourself out of something without thinking about it first.

I don't believe stop losses are just about numbers.  ZFX is obviously not gonna go under overnight, (someone say Pasminco? hehe) it has huge cash reserves and is making huge profits, its mine life is a worry though, but Zinc will in all likelihood remain high for a while. It is a solid investment and its PER is very low.

Give it a chance to grow. Don't let one bad day affect your decision.

But it is different with CFD's - hmm I never use them, but you are leveraged with interest, so to get out with a profit is a good effort, be happy with what you got!


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## wayneL (1 November 2006)

More confusion here between investors and traders.

A trader might not give fat rats about the p/e or mine life or whatever.

But that trader must decide what time frame he/she is trading. If you're dissappointed that you were stopped out, that means your stop is too tight for your time frame.

You'll catch bigger trends, but the trade off is bigger losses/giving back profit.


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## tech/a (1 November 2006)

wayneL said:
			
		

> You'll catch bigger trends, but the trade off is bigger losses/giving back profit.




Another way to attack this is to use less leverage or smaller parcel sizes to deminish risk.

*This Risk Mitigation and NOT profit when taking a trade and the profits WILL come.
Think Profit before Risk and the losses WILL come.*


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## Out Too Soon (4 November 2006)

I'm trying to make my very first stop loss order using Westpacs conditional order system.
AGS at close friday was $1.16 I entered a market condition @$1.08 & order details @$1.06

The user unfriendly system rejects with the following msg's
Market Conditions: Price is invalid.
Order Details: Price is invalid.

The FAQ is no help @ all.
I tried making the two amounts the same & tried swapping them, same response. I've got all weekend to sort this out. The price will probably go north on monday but I want to set up my first stop loss so I know how to do it. Any suggestions?


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## Out Too Soon (4 November 2006)

maffu said:
			
		

> Comsecs Conditional Trading Fee's are:
> 
> 1. You can elect to pay an "Up front" Conditional Trading fee of $9.95^ plus standard brokerage if your order trades. You pay the "Up front" fee regardless whether your order trades; or
> 2. You can choose to pay "On execution" of the order and only pay $14.95^ plus standard brokerage when an order trades. You do not pay the "On execution" fee if no part of your order is executed.
> ...




NO! All commsecs charges seem to be higher than most, I consider Westpac a ripoff @$24.95 & $29.95 if you dont have what they consider an "integrated acc" (or change the rules about what an integrated acc is   ) & $10 for a conditional order on execution only.
Do a search on brokers fees & charges, why pay more for the same service (or lack of it)


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## laurie (4 November 2006)

Interesting post guys learn't a lot but I have a Q! why can't stop losses have a trigger and limit as a % of sp so that if the sp increases you stop loss order increases automatically I assume now if the sp was $2 and goes up say to $2.5 you have to manually adjust the trigger and limit yes/no!   

cheers laurie


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## wayneL (4 November 2006)

laurie said:
			
		

> Interesting post guys learn't a lot but I have a Q! why can't stop losses have a trigger and limit as a % of sp so that if the sp increases you stop loss order increases automatically I assume now if the sp was $2 and goes up say to $2.5 you have to manually adjust the trigger and limit yes/no!
> 
> cheers laurie




You can do that with some US online brokers... IB for e.g.

Not so sure in Aus


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## pacer (4 November 2006)

*I never use them.....always win....hehe....fact not fiction!*


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## tech/a (4 November 2006)

laurie said:
			
		

> Interesting post guys learn't a lot but I have a Q! why can't stop losses have a trigger and limit as a % of sp so that if the sp increases you stop loss order increases automatically I assume now if the sp was $2 and goes up say to $2.5 you have to manually adjust the trigger and limit yes/no!
> 
> cheers laurie




*Laurie.*

Two distinctly different stops.

*The Initial stop loss* Set to deminish risk if a trade doesnt turn out as you had evaluated.

*Trailing Stop (As you describe.)*
Placed (often in correctly) as a stop to maximise a sharp gain in a stock.
Most who incorrectly use this stop minimise gains rather than maximise as it becomes their EXIT.Trailing stops should only be placed behind price action which has moved well beyond the normal profit parameters--in particular outlier moves.IE 30-50-100% gains in a few days.


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## MichaelD (4 November 2006)

Out Too Soon said:
			
		

> I'm trying to make my very first stop loss order using Westpacs conditional order system.
> AGS at close friday was $1.16 I entered a market condition @$1.08 & order details @$1.06
> 
> The user unfriendly system rejects with the following msg's
> ...



I use ComSec, so the names for things might be different, however;

1. Do you own AGS? Perhaps Westpac won't allow a conditional stop loss unless you actually own the stock.
2. Are you sure you are entering a Stop Loss instead of a different type of order, eg. a Buy Gain order? A Buy Gain at these numbers would be invalid.


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## brerwallabi (4 November 2006)

laurie said:
			
		

> Interesting post guys learn't a lot but I have a Q! why can't stop losses have a trigger and limit as a % of sp so that if the sp increases you stop loss order increases automatically I assume now if the sp was $2 and goes up say to $2.5 you have to manually adjust the trigger and limit yes/no!
> 
> cheers laurie



Etrade does Laurie
	If the stock price moves in an upward direction the Trailing Stop level is automatically recalculated at the end of every day and moves the trailing stop level up in line with the stock price. The order will trigger if the share price falls to the level of the Trailing Stop. So if you have your stop at 5% below the closing price it will always maintain the trigger price at 5% below.
In Etrade you can chose a % below yesterdays high, low or close and also have a limit.
There is no charge unless the order is executed, so you can manually change %'s as many times as you like.
If anybody is using Etrade I would be interested to hear from others on their strategy in selecting whether a low, high or close is the condition they use in their trailing stop and if they change from a close to a low the next day etc.


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## laurie (4 November 2006)

brerwallabi

Thanks for that   

cheers laurie


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## Out Too Soon (4 November 2006)

Thanks MichaelD, yes it is a stop loss sale of shares I hold, the way I read it it should be straight forward. I've already posted my views on Commsec, I've seen other beginners having similar probs with Commsec on this forum.
 I'll post again when I find out what the prob is.


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## Out Too Soon (6 November 2006)

Success! I had set prices right, Westpac couldn't suggest anything this morning except try again, could have been I only became eligible for conditional orders on friday after doing their 11 question exam.  
Today I'm realising how a trailing stop loss could be so handy, with AGS sp shooting for the moon I have increased my stop loss a no. of times.   The whole idea of the stop loss tho was to set it & leave it. 
Does COmmsec have trailing stops??? is that the reason for thier higher charges????
A trailing stop is what I really need it seems for current rocket resources. Otherwise they're not much use.


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## MichaelD (6 November 2006)

Out Too Soon said:
			
		

> Does COmmsec have trailing stops???



No - you need to adjust the trigger prices manually.


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## Steve C (24 July 2012)

Hi All,

Sorry for asking such a basic, silly question.

If I was to purchase $2000 worth of shares in XYZ at $1.00 per share, could I put in a conditional order to sell the shares at $0.98 or is this not possible due to being only able to sell $500 parcels meaning I would have to risk 25% of my capital not the 2% desired?  

I have a feeling it's not possible, but I was just thinking someone who already has shares in XYZ could buy the shares sold by the stop loss executed at $0.98?

Again, apologies for such a basic question.

Cheers,

Steve


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## Trembling Hand (24 July 2012)

Steve C said:


> Hi All,
> 
> Sorry for asking such a basic, silly question.
> 
> ...




You can sell any amount. The $500 min is for purchases.

Though I'm not sure what you are talking about with the "25% of my capital not the 2% desired"


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## Steve C (24 July 2012)

Trembling Hand said:


> You can sell any amount. The $500 min is for purchases.
> 
> Though I'm not sure what you are talking about with the "25% of my capital not the 2% desired"




I guess I have confused myself... what I am asking is if I buy $1000 worth of shares at $1.00, can I use a stop loss that only risk's 2% of the capital? (if the stock hits $0.98) It will sell?. One of the other posters on here told me you can't do this becase you can only sell $500 parcels, so he was saying that I could only have a stop loss in this case when I have lost $500 (share price goes to 0.50c) as you can't sell less then that and that is why trading with such limited capital is a waste of time in terms of risk management?


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## Trembling Hand (24 July 2012)

Steve C said:


> I guess I have confused myself... what I am asking is if I buy $1000 worth of shares at $1.00, can I use a stop loss that only risk's 2% of the capital? (if the stock hits $0.98) It will sell?. One of the other posters on here told me you can't do this becase you can only sell $500 parcels, so he was saying that I could only have a stop loss in this case when I have lost $500 (share price goes to 0.50c) as you can't sell less then that and that is why trading with such limited capital is a waste of time in terms of risk management?




Ok lots wrong with the above.

You can sell any amount.

You wouldn't want a 2% move in a stock to be a stoploss. especially a $1.00 stock. Almost certainly to be tagged.

You aren't confusing the 2% of total capital with 2% move on the stock are you?

Some brokers will not accept conditional orders too close to the last traded price, but certainly not restrict you to having to lose 50% before a stop kicks in.


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## Steve C (24 July 2012)

Trembling Hand said:


> Ok lots wrong with the above.
> 
> You can sell any amount.
> 
> ...




Found it - This is the quote - can you confirm if this is correct Trembling Hand?



> Hey guys don't want to spoil the party but starting to trade with $1500 is risky because you have to risk at minimum 1/3 of your trading account ($500 parcels). Many traders aim to risk around 2%-5% of their account per trade (so if the trade is bad and makes a loss it's no big deal). This means you should have around 10k to start with (500/0.05). That's just my 2 cents, i know people have been successful from small starts but I just want to point out that just because Buffet or Livermore hit it big that you will too.


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## againsthegrain (24 July 2012)

Steve C said:


> I guess I have confused myself... what I am asking is if I buy $1000 worth of shares at $1.00, can I use a stop loss that only risk's 2% of the capital? (if the stock hits $0.98) It will sell?. One of the other posters on here told me you can't do this becase you can only sell $500 parcels, so he was saying that I could only have a stop loss in this case when I have lost $500 (share price goes to 0.50c) as you can't sell less then that and that is why trading with such limited capital is a waste of time in terms of risk management?





you can buy a share at $1.00 and you can sell it the next minute for $0.99 however the minimum sell amount has to equal $500. so if you buy 1k and your 1k turns to $990 (if you sell at $0.99) you need to sell a minimum of $500 from that $990 at $0.99 for the order to be accepted.

If the order gets fully filled straight away is another question, you could have only $200 from the $500 filled and then cancel it but you pay brockerage fees, and depending on the volume of the share it would be pointless trying to guess what orders will get filled.

at 1k this exercise is pointless, even if you have the cheapest broker which is cmcmarkets i believe $9.95 per trade, you are already spending 2 x 9.95 to sell and buy.

If you are playing with 50k or 100k then those % reflect different on the $ value

Personally when I will gamble with 1k I will throw it on some dirty undervalued speccy and look for 20% - 50% gains or only think about selling after similar loses, otherwise you are only chasing $10 $20 or $50 each way.

Putting around 10k on a share then you start to think more about stop losses etc, but im sure there are guys who gamble with 10k on specs just as I will do with 1k.


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## CanOz (24 July 2012)

Can't imagine why you need to trade $500 parcels...in 7 years of trading equities I've never had to do that....ever.

Something to consider - *Fixed Fractional Positioning
*
Example You have $10000 in capital. You only want to risk 1% on each trade. Thats *$100.00
*
You see a stock that meets your system criteria, you want to buy on a break of 1.05, so 1.06. You see support at 1.00. You place an initial stop at .98. Your trade risk is .08

*$100* / .08 = 1250. You purchase 1250 shares at 1.06 for $1325 Your stop gets hit and you sell them for $1225. You lose $100, exactly 1% of your capital.

Cheers,


CanOz


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## Steve C (24 July 2012)

againsthegrain said:


> you can buy a share at $1.00 and you can sell it the next minute for $0.99 however the minimum sell amount has to equal $500. so if you buy 1k and your 1k turns to $990 (if you sell at $0.99) you need to sell a minimum of $500 from that $990 at $0.99 for the order to be accepted.
> 
> If the order gets fully filled straight away is another question, you could have only $200 from the $500 filled and then cancel it but you pay brockerage fees, and depending on the volume of the share it would be pointless trying to guess what orders will get filled.
> 
> ...




Thanks for the explanation - I was going to start out with $2k and use Radge's theory of minimise your loss (2-5%) and maximise your profits whilst learning about the market... I guess a stop loss with $2k invested is pointless though.

Cheers


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## Steve C (24 July 2012)

CanOz said:


> Can't imagine why you need to trade $500 parcels...in 7 years of trading equities I've never had to do that....ever.
> 
> Something to consider - *Fixed Fractional Positioning
> *
> ...




Thanks Canoz - well now I am really confused! Time to do some more reading...

So if I was to invest $1000 for example in XYZ can I use a stop loss to risk only $50?


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## CanOz (24 July 2012)

Steve C said:


> Thanks Canoz - well now I am really confused! Time to do some more reading...




Just work through some practical examples. If you are pattern trading then this is the way to go IMO. The great ting about it is that it takes into consideration the size of your account, your always only risking 1% of capital.

CanOz

Heres a simple calculator:


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## againsthegrain (24 July 2012)

CanOz said:


> Just work through some practical examples. If you are pattern trading then this is the way to go IMO. The great ting about it is that it takes into consideration the size of your account, your always only risking 1% of capital.
> 
> 
> CanOz




So if I was to invest $1000 for example in XYZ can I use a stop loss to risk only $50?

Not sure what you mean exactly risk $50 but you can risk $50 in a sense that as soon as your 1k turns to $950 your stop loss sells everything. Ofcourse you are risking more then $50 after your brockerage fees.


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## Steve C (24 July 2012)

againsthegrain said:


> So if I was to invest $1000 for example in XYZ can I use a stop loss to risk only $50?
> 
> Not sure what you mean exactly risk $50 but you can risk $50 in a sense that as soon as your 1k turns to $950 your stop loss sells everything. Ofcourse you are risking more then $50 after your brockerage fees.




I think I now have my answer- thanks

What I meant by risking $50 is that I am only allowing for the shares to decrease in value to risk $50, once it goes past that I want a stop loss to sell the shares and move on and buy something else. I want to implement Radge's theory of not holding on to losing shares once they pass your level of risk.

Can anyone confirm if the below is true of false? this is what got me so confused...


> Hey guys don't want to spoil the party but starting to trade with $1500 is risky because you have to risk at minimum 1/3 of your trading account ($500 parcels). Many traders aim to risk around 2%-5% of their account per trade (so if the trade is bad and makes a loss it's no big deal). This means you should have around 10k to start with (500/0.05). That's just my 2 cents, i know people have been successful from small starts but I just want to point out that just because Buffet or Livermore hit it big that you will too. .


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## CanOz (24 July 2012)

againsthegrain said:


> So if I was to invest $1000 for example in XYZ can I use a stop loss to risk only $50?
> 
> Not sure what you mean exactly risk $50 but you can risk $50 in a sense that as soon as your 1k turns to $950 your stop loss sells everything. Of course you are risking more then $50 after your brockerage fees.




Yeah you should consider brokerage if its a concern to you. I can't say that I've ever only risked $50 on an equity trade but work out with the calculator, using the price of the stock. You own the shares, you can sell them at whatever price you want under the current market value, no matter how many you own.

CanOz


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## CanOz (24 July 2012)

Steve C said:


> I think I now have my answer- thanks
> 
> What I meant by risking $50 is that I am only allowing for the shares to decrease in value to risk $50, once it goes past that I want a stop loss to sell the shares and move on and buy something else. I want to implement Radge's theory of not holding on to losing shares once they pass your level of risk.
> 
> Can anyone confirm if the below is true of false? this is what got me so confused...




Find out from your broker if they have a minimum amount of shares that you can purchase. That's the only thing you need to worry about. If you own the shares you can sell them at any price under the market.

Radge taught me FFP.

CanOz


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## skc (24 July 2012)

againsthegrain said:


> you can buy a share at $1.00 and you can sell it the next minute for $0.99 however the minimum sell amount has to equal $500.




Which broker has minimum sell amount? Not any of the ones I use...


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## Trembling Hand (24 July 2012)

Look that $500 minimum sell is BS. Its only applies to purchases.

Look at this example. You purchase the minimum amount $500 what happens if it ticks down to $499?????

Is the broker going to say you can never sell it because they have a $500 min?


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## Trembling Hand (24 July 2012)

Steve C said:


> Thanks Canoz - well now I am really confused! Time to do some more reading...
> 
> So if I was to invest $1000 for example in XYZ can I use a stop loss to risk only $50?




Mate you do realise the 2% rule has nothing to do with 2% *share *price move. Where you are going wrong is that you would only alot, as an example, 10% of total capital to 1 share *not ALL of your capital.*


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## Steve C (24 July 2012)

Trembling Hand said:


> Look that $500 minimum sell is BS. Its only applies to purchases.
> 
> Look at this example. You purchase the minimum amount $500 what happens if it ticks down to $499?????
> 
> Is the broker going to say you can never sell it because they have a $500 min?




Great point -I thought the quote above was a bit fishy, it also made me think that trading with $2k and also implementing risk managment (tight stop loss) was impossible. Great news, now I can put Nick Radge's "minimise loss, maximise profits theory" and the whole "expectancy" theory into practice. 

Thanks for everyone's inputs!


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## Trembling Hand (24 July 2012)

Steve C said:


> it also made me think that trading with* $2k and also implementing risk managment *(tight stop loss) was impossible. Great news, now I can put Nick Radge's "minimise loss, maximise profits theory" and the whole "expectancy" theory into practice.




NO YOU CANNOT!!


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## Steve C (24 July 2012)

Trembling Hand said:


> NO YOU CANNOT!!




Trembling hand, I am talking about risk in terms of the purchase of the stock (how much I will allow it to fall before I sell), not the risk of not having a diversified portfolio (all my capital in one company)

perhaps that is the confusion? I do apologise again, I realise I have basically 0 knowledge and I must sound like a complete noob to you guys. I have so so much to learn!


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## Trembling Hand (24 July 2012)

Steve C said:


> Trembling hand, I am talking about risk in terms of the purchase of the stock (how much I will allow it to fall before I sell), not the risk of not having a diversified portfolio (all my capital in one company)




You cannot use Fixed Fractional Positioning with 2000 dollars there for you cannot trade with anything like a "Radge theory".


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## sinner (24 July 2012)

Trembling Hand said:


> Look that $500 minimum sell is BS. Its only applies to purchases.
> 
> Look at this example. You purchase the minimum amount $500 what happens if it ticks down to $499?????
> 
> Is the broker going to say you can never sell it because they have a $500 min?




What we are talking about here with this $500 thing is "Marketable Parcels" and it's important to understand the actual rules

www.asxgroup.com.au/media/PDFs/Chapter19.pdf


> marketable parcel
> the meaning in the procedures of the ASX Operating Rules.
> Note: The meaning of “marketable parcel” in the ASX Operating Rules Procedures is, in relation
> to:
> ...




You will notice there are plenty of ASX notices out there of companies attempting to sell their holdings of "unmarketable parcels". It's been a while but I do remember at least one case of my sell order being bounced by Comsec on the grounds that the sell would leave the remaining shares as an unmarketable parcel. Someone correct me if I'm wrong.


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## Steve C (24 July 2012)

Trembling Hand said:


> You cannot use Fixed Fractional Positioning with 2000 dollars there for you cannot trade with anything like a "Radge theory".




Okay, thanks again for taking the time to try and explain the above to me...So far I have only read the "Successful Stock Trading" PDF by Radge, where he talks about always ensuring you have a tight stop loss so you can technically lose more than you win (excluding brokerage in this example) and still make a profit by the couple of stocks that go up. I may have got this completely wrong and misunderstood what he was trying to say...

R Ratio etc...


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## pavilion103 (24 July 2012)

If you trade with $2,000 of capital and use fixed fractional positioning of 2% you do realise the amount risked on each trade is only $40? You do realise you have to pay brokerage too?


If you have say $20,000 and want to risk 2% per trade this is $400 per trade. 
So for example,say you take the following trade:
Buy - 1.30 Stop loss - 1.20. 
The gap between entry and stop is approx 7.7%. 
The position size you take would be approx $5,200 (which is $400/.077)
NOW - if the share hits 1.20 you are taken out of the position with a $400 loss which is 2% of capital. This is how you use fixed fractional positioning. 

*Note the position size here is over 25% of your capital base. You'll have to monitor this to make sure you aren't taking trades which are too large.


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## Steve C (24 July 2012)

pavilion103 said:


> If you trade with $2,000 of capital and use fixed fractional positioning of 2% you do realise the amount risked on each trade is only $40? You do realise you have to pay brokerage too?
> 
> 
> If you have say $20,000 and want to risk 2% per trade this is $400 per trade.
> ...




Thanks Pav - I do realise I also have to pay brokerage (CMC - $9.90 per trade). The idea of using $2k is just to get my feet wet, and the use of a tight stop loss makes sure I don't lose all of my capital straight away while I am learning.


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## pavilion103 (24 July 2012)

Steve C said:


> Thanks Pav - I do realise I also have to pay brokerage (CMC - $9.90 per trade). The idea of using $2k is just to get my feet wet, and the use of a tight stop loss makes sure I don't lose all of my capital straight away while I am learning.




It is going to be impossible to make a profit if your brokerage is 50%!!!! of your risk ($40). 

A few questions:
- Have you been paper trading? If so, are you happy with your results
- Is $2,000 all you have saved up or are willing to use?
- Why don't you paper trade while you build up your account to a size where brokerage doesn't become such a large issue e.g. $15,000 or so?


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## CanOz (24 July 2012)

pavilion103 said:


> It is going to be impossible to make a profit if your brokerage is 50%!!!! of your risk ($40).
> 
> A few questions:
> - Have you been paper trading? If so, are you happy with your results
> ...




I think this is a great idea Pav. Its not the same as real trading of course, but its a hell of allot cheaper to learn about expectancy than to try with real coin.

If you can trade your system profitably on paper, you only have yourself to master.

CanOz


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## tech/a (24 July 2012)

pavilion103 said:


> It is going to be impossible to make a profit if your brokerage is 50%!!!! of your risk ($40).
> 
> A few questions:
> - Have you been paper trading? If so, are you happy with your results
> ...




You know you can become an expert at trading just one stock.
We do it with Futures.
There is no reason why you can't just trade one.

You can also move your stop up to break even as soon as there is some room in the trade.
This has the effect of stopping you out more often but will have a positive impact on your  Reward To Risk.

If it was me I'd be looking at stocks above 5 cents and below 50c plenty here.


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## Trembling Hand (24 July 2012)

tech/a said:


> You know you can become an expert at trading just one stock.
> We do it with Futures.
> There is no reason why you can't just trade one.
> 
> ...




Yeah you can do it with FX, maybe futs or CFDs and stick to reasonable money management but it seems like most start at the stock trading.

god knows why!!


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## Ves (24 July 2012)

Not sure if it has been mentioned, or is relevant (it should be), but a stop loss only reduces the risk of your market exposure via the security if it sells! It is not a gaurantee as far as I know.   If you have a stop loss at $7.50, and the security goes into a trading halt at $7.60 and re-opens at $4 I am fairly certain you have lost much more than you anticipated!

Perhaps you could use some sort of derivatives to avoid this scenario?


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## tech/a (24 July 2012)

Ves said:


> Not sure if it has been mentioned, or is relevant (it should be), but a stop loss only reduces the risk of your market exposure via the security if it sells! It is not a gaurantee as far as I know.   If you have a stop loss at $7.50, and the security goes into a trading halt at $7.60 and re-opens at $4 I am fairly certain you have lost much more than you anticipated!
> 
> Perhaps you could use some sort of derivatives to avoid this scenario?




You would still be in the trade if the stock didn't trade AT $7.60
Unless you place a stop limit order.

Good point worth mentioning though.
Liquidity needs to b considered as well particularly in the stocks I mentioned above.
E Minis as T/H alludes to would be worth considering.


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## burglar (24 July 2012)

Ves said:


> Not sure if it has been mentioned, or is relevant (it should be), but a stop loss only reduces the risk of your market exposure via the security if it sells! It is not a gaurantee as far as I know.   If you have a stop loss at $7.50, and the security goes into a trading halt at $7.60 and re-opens at $4 I am fairly certain you have lost much more than you anticipated!
> 
> Perhaps you could use some sort of derivatives to avoid this scenario?




We all have to start somewhere. 
Worrying about gap downs of this magnitude would have me not sleeping at night.

I know the risk is real, but I have ignored such risk because I like sleeping!
I do minimise this risk by extensive study.


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## Ves (24 July 2012)

tech/a said:


> You would still be in the trade if the stock didn't trade AT $7.60
> Unless you place a stop limit order.



Yes exactly,  $7.60 is merely an example.  Anything above $7.50 works in that example. The point is that a massive gap down whilst you are still in the trade will not be de-risked by use of a stop loss!! As you said liquidity at the price you want to exit is essential.


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## skc (24 July 2012)

Ves said:


> Not sure if it has been mentioned, or is relevant (it should be), but a stop loss only reduces the risk of your market exposure via the security if it sells! It is not a gaurantee as far as I know.   If you have a stop loss at $7.50, and the security goes into a trading halt at $7.60 and re-opens at $4 I am fairly certain you have lost much more than you anticipated!
> 
> Perhaps you could use some sort of derivatives to avoid this scenario?




Yes it is bound to happen the longer you trade. You can abuse fixed fractional positioning - say it's a $10 stock and you "think" your stop loss is 5c. You "think" you are risking 2% of your $50k capital ($1k), so you bought 20,000 shares @ $10. Little did you realise that you've just put on a position 4x your account size. 

5 minutes after you bought, the stock goes into trading halt, announces bad news and opened at $6.20. You've just lost $76k, completely blown your account and still owe your friendly CFD provider $26k. 

That's why I always believe in a sense check of total exposure vs account size. Depending on the risk appetites - say you think the worst case scenario the stock will move 50% against you and you never want to lose 15% of your capital in a black swan event.... then keep your maximum position size to 30% of your account. In the above example, you would have bought 1500 shares instead, and the gap would cost you $5,700. Still hurt as hell but you survive to fight another day.

With some stocks, some CFD providers offer guaranteed stops. But they do cost money and add up quickly over time if you use them on every trade. They also limit how close you can put the stop (usually 10%) so a trigger still hurts a lot. I have used them occassionally on binary events (e.g. ACCC determination on Austar takeover) but overall with mixed success. I guess they priced those guarantees with a fair bit of margin so there's not much of an edge to the average trader.


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## Ves (24 July 2012)

Thanks skc - I think you have conveyed perfectly what I was trying to get at in terms of "exposure" vs the more commonly held view of "risk."


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## sinner (24 July 2012)

> Perhaps you could use some sort of derivatives to avoid this scenario?




When it comes to single names it's pretty much down to options and not so easy for single names on the ASX unless you're trading the ASX20 and don't mind paying a lot for the privilege!

"Hedges" cost alpha (be they stoploss or derivatives) no matter what, so sizing your capital as skc suggests is often the solution that most safely protects your capital for the cheapest cost.


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## IFocus (25 July 2012)

Ves said:


> Thanks skc - I think you have conveyed perfectly what I was trying to get at in terms of "exposure" vs the more commonly held view of "risk."





Have always applied the how do I get up and trade next day if I lose 50% on a position, position size accordingly as stated trade the markets long enough and it will happen one day.

In a market the size of the ASX (small) many stocks are heavily correlated so often you can spread your position across 2 or more stocks.


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