Adjusting the inital stop loss...

[Blogsy]

Hi guys,

Have been playing with stop losses the last couple of days and have come across an interesting mini-conundrum with stop losses. I'm setting the initial stop loss without a problem (just your normal ATR-based stuff), but have been pondering when to readjust it to a break-even SL. The two options I have seem to be...

A. wait until the stock has moved sufficiently high to reset the stop loss (trailing with the ATR) to a break-even point in one jump (so the gap between price and SL would move out to several times ATR before I did this).

B. adjust the stop loss incrementally from it's initial position as the price moves up (though not readjusting with downwards action) and (hopefully, without too much negative action to get stopped out) maintain a consistent ATR gap until it reaches a break-even point.

Option A seems to leave the gap too wide, but Option B seems to increase the chance of being stopped out if a sudden swing occurs. So I'm bringing this to the experts... anyone willing to share how they handle the initial stop loss to break-even stop loss process?

 

[nizar]

Hi guys,

Have been playing with stop losses the last couple of days and have come across an interesting mini-conundrum with stop losses. I'm setting the initial stop loss without a problem (just your normal ATR-based stuff), but have been pondering when to readjust it to a break-even SL. The two options I have seem to be...

A. wait until the stock has moved sufficiently high to reset the stop loss (trailing with the ATR) to a break-even point in one jump (so the gap between price and SL would move out to several times ATR before I did this).

B. adjust the stop loss incrementally from it's initial position as the price moves up (though not readjusting with downwards action) and (hopefully, without too much negative action to get stopped out) maintain a consistent ATR gap until it reaches a break-even point.

Option A seems to leave the gap too wide, but Option B seems to increase the chance of being stopped out if a sudden swing occurs. So I'm bringing this to the experts... anyone willing to share how they handle the initial stop loss to break-even stop loss process?

I used to have this problem all the time.

The answer can be found through backtesting. Try each outcome and see which one works better over hundreds of trades over years of data.

I use Metastock coupled with TradeSim but it can be done through Amibroker and many other software.

 

[Rockhoundnz]

I used to have this problem all the time.

The answer can be found through backtesting. Try each outcome and see which one works better over hundreds of trades over years of data.

I use Metastock coupled with TradeSim but it can be done through Amibroker and many other software.

Here is a third option that I use for futures trading:

Set your initial stop loss. Have a first profit target where you will take a third of your trade size off the table - I use about 1/3 of the stop loss amount, but obviously this will vary with trading style and timeframes. When you have hit your first profit target and taken some off the table then move the stop loss up by an amount equal to your first profit target and then start trailing using your ATR technique.

 

[julius]

Best way is to look at MFE/MAE distributions...

You can do this for systematic and discretionary methods.

 

[tech/a]

I simply move to B/E at 1R.
Why complicate it?