Question for traders about stop losses?

[tech/a]

On their server I would think.

I use IB.
A real pain to set up but once up and running there is nothing better in my view.
Brokerage and trading flexability are second to none.

 

[barry593]

On their server I would think.

I use IB.
A real pain to set up but once up and running there is nothing better in my view.
Brokerage and trading flexability are second to none.

Thanks Tech
Couple of questions...
Can it be programmed as a trailing stop.. ie follow the price up??
Why is it a pain? complex setup or what??

 

[tech/a]

Thanks Tech
Couple of questions...
Can it be programmed as a trailing stop.. ie follow the price up??
Why is it a pain? complex setup or what??

No.
You can and I do alter my stops daily normally in the morning at a pivot,on a timeframe I'm following.

Setup is complex and security and ID take time.
But having said that they are very thorough which is a good thing.
Security is excellent so I feel my account is secure.
Once up and running is very user friendly.
I dont trade complex trades like options (complex to me!) but you can trade anything from Futures to options short/long,and most bourses in the world.

 

[Boggo]

I used to have a set and forget attitude towards stop loss settings.
From my (limited) experience I now believe that each stock has to have a slightly different set of rules, the only consistent area is the initial stop when a trade goes the opposite to what you expect.

The initial stop is usually an obvious point, ie. possibly a recent low etc.
How the stop is managed from there is where it can start to vary from trade to trade.

The number one aim for me is to get the stop up to break even while staying a safe distance from the actual market (numerous small profit trades can be easily eroded by one loss).

I have attached a couple of different charts of MCC
The first chart shows a 2.4 times ATR (metastock formula, [Int(HHV(C-2.4 * ATR(10),15)*100)/100]).
Testing this formula based on the close being below the stop is different to having to set a conditional stop with your broker software.

In this example I got stopped out on long spike down at close to break even $.
I actually set the conditional sell order to $10.49, effectively I was "trailing" the trailing stop loss.
To avoid being taken out during the day and only stopped out on the close would mean I would have to limit the activation period of the contingent order to the last few minutes of the trading day, visualize the potential risks associated with that procedure for a minute.

In my backtesting this was a very profitable trade based on being stopped out when the CLOSE was below my trailing stop, reality... just broke even.

The second chart shows the new entry, in this case for the entry the buy quantity is determined by the distance between the buy point and the stop point along with the amount you are prepared to lose on a trade if it goes wrong.

The aim as I mentioned earlier is to get the stop up to the break even point while giving the stock enough room to move ( I have got that now on this trade).

I didn't intend to waffle on with this post, basically what I am trying to say is that there is no magic stop that works on everything and implementing backtesting in the real world is not always going to work, its all part of the education process I guess!
(Education = behaviour modified by experience)

My
Mike

 

[Porper]

The aim as I mentioned earlier is to get the stop up to the break even point while giving the stock enough room to move ( I have got that now on this trade).

I didn't intend to waffle on with this post, basically what I am trying to say is that there is no magic stop that works on everything and implementing backtesting in the real world is not always going to work, its all part of the education process I guess!
(Education = behaviour modified by experience)

My
Mike

Hello Boggo,

Is that MT predictor software you are using? If so how do you find it.I know it counts Elliot waves for you, but I am more interested in how good the scans are .

 

[MichaelD]

In my backtesting this was a very profitable trade based on being stopped out when the CLOSE was below my trailing stop, reality... just broke even.

Obvious question - why would you use an intraday stop then? (I have never found an intraday stop on any timeframe to do anything but hurt system performance).

 

[Boggo]

Hello Boggo,

Is that MT predictor software you are using? If so how do you find it.I know it counts Elliot waves for you, but I am more interested in how good the scans are .

Yes it is Porper, I have been using the earlier version for a few years now. I find the scans very good, you can adjust the parameters if you wish.
It does assume that you have a working knowledge of Elliott Wave including Fibonacci and Alternate price projections etc.
As with any software it gives you potential candidates, the rest is up to you.

Obvious question - why would you use an intraday stop then? (I have never found an intraday stop on any timeframe to do anything but hurt system performance).

How would you set your stop if you were not going to have access to the market tomorrow Michael ?

 

[Porper]

Yes it is Porper, I have been using the earlier version for a few years now. I find the scans very good, you can adjust the parameters if you wish.
It does assume that you have a working knowledge of Elliott Wave including Fibonacci and Alternate price projections etc.
As with any software it gives you potential candidates, the rest is up to you.

Thanks Boggo.I have heard there is a intra day version coming out in September, so may wait until then.The version that came out end of June is semi-real time ? and supposed to be good.

 

[MichaelD]

How would you set your stop if you were not going to have access to the market tomorrow Michael ?

I would not trade a system that required me to be in such a position - I aim NEVER to have a stop in-market.

However, if I were...

1. EOD stop loss hit yesterday.
2. I would normally close on the next OPEN.
3. If I were unable to be there at the next OPEN, I would set an AT LIMIT order for as far below the closing price as I could.

The idea here is that I most likely will get filled on the open. If the open gaps up (as it often does on a down day) then I will take advantage of the gap up.

A contingent order of your style guarantees a low fill since it will always throw away the potential advantage of an opening gap up.

One further note: I have backtested entering/exiting on the OPEN/CLOSE and have determined that for my EOD system that exiting on the OPEN offers the least drawdown overall so is the best time to exit for me within the limits of what I can test.

 

[banjosmyth]

Okay. So the ASX is down about 2% today..

Those of you that bought stocks yesterday with a 2% stop loss in place - does that mean your stop losses are getting triggered all over the place today? If so does that not drag the market down even further, triggering more stop losses from other punters?

Okay, so if you see the DOW went down overnight say 2%, and the ASX is heading down - would it be wise to move your stop loss down a bit to say 4%. Because the last thing you want is your stop loss hit, your shares sold, you make a small loss, then your stock bounces up again tomorrow along with the ASX as a whole.

Hi Guys

I believe that there can be some big problems with stop losses. There is nothing worse than being stopped out only to see the share price quickly rally again.

Depending on what strategy you are using it can sometimes be better to insure yourself against big losses by buying put options. This works well if you are dealing with relatively large amounts of money or if you are highly leveraged (or using CFD's).

The beauty of using puts instead of stop losses is
-you will avoid being stopped out when your share price just dips below your stop loss
-You can protect 100% of your portfolio by buying at the money puts
- If the share price gaps this doesn't negatively effect your put options whereas your stop loss can end up meaning very little!


This obviously doesn't suit every strategy but it can be a great option at times!

Cheers

Banjo Smyth

 

[Paladin]

Okay. So the ASX is down about 2% today..

Okay, so if you see the DOW went down overnight say 2%, and the ASX is heading down - would it be wise to move your stop loss down a bit to say 4%. Because the last thing you want is your stop loss hit, your shares sold, you make a small loss, then your stock bounces up again tomorrow along with the ASX as a whole.

Actually, the last thing I'd want is to not have a stop loss in place and to see the price dive again. Because a lot of stocks, especially small cap ones, trade very differently to the ASX. I'm not really watching the ASX as a whole on a daily basis at the moment, because at the moment I don't have $ in BHP, Rio, financials and so on that disproportionately affect the ASX.

For me (being a complete newbie, but having been playing with small parcels to learn the ropes recently - and not having hedging strategies like options in place yet) being unemotional about stops, and not changing a strategy once I've entered in to a trade (unless there's a very good and logial reason to do so) is becoming more and more important. Two weeks ago, I bought a stock on an uptrend and immediately set a trailing stop so that I'd be slightly better than b/e if it triggered worst case and book some profit best case. It's a volatile stock, and trying hard to find its support/resistance levels in a new zone it's entered into. The stock went up, not enough though for my trailing stop to adjust up, and then down she came again. I really had to struggle with not adjusting the stop because I like the company and thought it might just be a daily glitch, but decided to let discipline win out over optimism. So, next day on open, off the stop went. Saved me from about a further 5% hit on the stock over the next few days, I returned a small profit after brokerage, and now I'm monitoring to see when she is trading well again so I can trade with the trend a second time. So I didn't make a lot of dough, but I think I learned a good lesson.

And as for online brokers, etrade (who I use) allows you to set stops, trailing stops and so on really easily - and add other conditional indicators like volume so that if you're playing with an illiquid stock, you don't get caught out on small noises.

Anyway, like SGT Schultz I know NUZZINK, but lord knows I've drained enough info out of this site that I'm desperately trying to put some back in where I can.

 

[tech/a]

Hi Guys

I believe that there can be some big problems with stop losses. There is nothing worse than being stopped out only to see the share price quickly rally again.

Depending on what strategy you are using it can sometimes be better to insure yourself against big losses by buying put options. This works well if you are dealing with relatively large amounts of money or if you are highly leveraged (or using CFD's).

The beauty of using puts instead of stop losses is
-you will avoid being stopped out when your share price just dips below your stop loss
-You can protect 100% of your portfolio by buying at the money puts
- If the share price gaps this doesn't negatively effect your put options whereas your stop loss can end up meaning very little!


This obviously doesn't suit every strategy but it can be a great option at times!

Cheers

Banjo Smyth

90% of the market doesnt have options attached to the share.

 

[vast524]

I was wondering then if you use intra day stops or wait till the day is finished?
Does the stop value vary from person to person. Or do most traders use a 2% of there overall portfolio?
If I had a 10% stop on a 30c stock and it dropped to 26.5c during the day. Should I sell immediately or wait till the day is finished and then sell either in the post 4:00pm slot or on opening?
It can be hard to know if the stock is being oversold or the sentiment has changed and it will continue down.
Thanks for a very interesting topic
Regards

 

[Boggo]

90% of the market doesnt have options attached to the share.

Jamie forgot that bit

 

[cordelia]

I was wondering then if you use intra day stops or wait till the day is finished?
Does the stop value vary from person to person. Or do most traders use a 2% of there overall portfolio?
Regards

I have tried various approaches to placing stops....

I NEVER move my stop down......you may as well not have one if you do that.....

I have various criteria that I review everyday which I use to manage my trades..If I don't like the way things are going I close out my position rather than hope my stop isn't triggered....

In regards to the 2% rule..this is based on risking 2% of your total portfolio per trade....calculated as risk per share...someone correct me if I am wrong

If you have a $100000 portfolio the most you can risk is $2000....

So the difference between your entry price and your stop is the risk...

ie: your entry @ .20c stop @ .18c = .02 per share (just an example)

Therefore if you divide $2000 by .02 you can buy 100000 shares....

The further your stop is away from your entry the less shares you can buy....So there's a trade off between the number of shares you can buy (and potential gains) against the movement in price....

You need to work out where the best place to put your stops is and go from there.....that's the tricky part....

It pays to read some of the material on risk management regarding stops and position sizing before entering a trade....