Question/s

[tech/a]

Firstly.
What needs to happen before ANY trade can make a profit?

 

[Knobby22]

I would say that the present price is not the correct price i.e. the stock or dollar or commodity is under or overvalued and you believe the public perception will change or is presently changing. This is the way Soros works whom I greatly respect.
(I'm pretty sure that's not the answer your looking for tech/a).

 

[Smurf1976]

You have to open your position.

 

[dutchie]

You have to have a plan.

 

[serp]

I would say that the present price is not the correct price i.e. the stock or dollar or commodity is under or overvalued and you believe the public perception will change or is presently changing. This is the way Soros works whom I greatly respect.
(I'm pretty sure that's not the answer your looking for tech/a).

Heh, the text book financial management university answer!

 

[tech/a]

Knobby---This is a setup and can be found or percieved in many ways.
Whether the market agrees or price actually reacts is not known.
So in itself it wont cause profit without something else happening.

Smurf---yes you sure do and bought a smile to my face as many watch opportunities flash past.----But opening a postion in itself wont cause profit.

Dutchie---again true you should have a plan--I say dont open a trade without one.---But having a plan wont cause a profit.


Profit in trading stock can only occur if you are IN A TREND.
No trend no profit.


Question 2

Other than limiting our loss why have a stop?
Other than limiting our loss what can be achieved or should we be trying to achieve by varying our stop?

 

[Milk Man]

Question 2

Other than limiting our loss why have a stop?
Other than limiting our loss what can be achieved or should we be trying to achieve by varying our stop?

a): to lock in profit

b): to maximise profit and block whipsaws

just testing 5%, 6%, 7% and 8% trailing stops on a medium trading strategy i developed

 

[tech/a]

Sorry meaning Initial stops.
Not Trailing Stops.

While on Trailing stops.
When should a trailing stop be applied.

Most trailing stops are applied incorrectly----as they negate and annulify a methods EXIT.In which case the EXIT becomes the trailing stop in EVERY instant.

 

[dutchie]

As mentioned the stop is in place to limit the loss if the trade goes wrong but the stop position should also incorporate (if possible) a leeway that the stock may fall before rising to its predicted level.

 

[tech/a]

Often traders lose sight of the reason for a stop.

A stop is placed for the sole reason of capital protection, but why do we need to have it.

Well the reason why we buy a stock or commodity in the first place often proves to be wrong.(more often than we would like!)
When this occures its your stop which limits your loss.

But where to put the stop.
There are many theories as to best placed stops.My preference is in the closest position possible where price action shows that the reason for buying the instrument in the first place NO LONGER exists.

Even from a fundamental point of veiw a stop can and should be found and placed.

For those who are concerned that as soon as their stop is hit then the price will miraculously stop and reverse in the direction they first thought---my suggestion is to have a RE ENTRY point where CLEARLY the reason for entering the instrument is again valid----set a stop again for the new trade.

These small hints should stop you from setting stops that are too wide and consequently annulify the reason for placing one in the first place---to preserve capital.

Get used to taking small loses and letting the winners run.

Question.
What is the correct way and reason to set a TRAILING STOP

 

[Porper]

What is the correct way and reason to set a TRAILING STOP

Ok, I'll have a stab at this, as participation makes it sink in better.

First of all the reason for any stop is to preserve starting capital, profits and in this case stop you taking profits too early

The next part of the question is a bit trickier.As far as I understand it a trailing stop works as follows :

Say you wanted to sell xyz share and it was $1.00.
You would set your stop at say 0.99c, if it is hit, fine you are stopped out.
If the price went up to $1.01 you would set the stop at $1.00, just keep moving your stop one cent below the current price.This way you can stay in a rising trend.

I haven't done this, but you can also have a percentage trailing stop, not sure about the calculations used though, presumably a set percentage of any rise is followed until the share price retreats ?

Well that's my little stab, little being the word.

 

[tech/a]

Porper.

You are correct in describing "ONE" style of trailing stop.

BUT

In the thread abov I've made 2 statements

(1) Most place a trailing stop and it becomes THE EXIT.So in other words there is no point in having an exit as the trailing stop just takes out the trade when it retraces a little.In some cases this is fine.
However if you want the 300-400-500% winners that are out there a trailing stop wont let you get on one long enough to take advantage.

(2) Most think the reason is to maximise profit by not giving back much---well that to is true---so how do we over come (1) and why should you place a trailing stop---there is a correct use which satisfies both 1 & 2

At least you had a go and your thinking!

 

[Milk Man]

its one factor in a positive expectancy strategy- maybe just a means to an end?

i'm assuming you're suggesting a trailing stop and a mechanical exit

had enough mental excercise for now-

answer?

 

[RichKid]

Porper.

You are correct in describing "ONE" style of trailing stop.

BUT

In the thread abov I've made 2 statements

(1) Most place a trailing stop and it becomes THE EXIT.So in other words there is no point in having an exit as the trailing stop just takes out the trade when it retraces a little.In some cases this is fine.
However if you want the 300-400-500% winners that are out there a trailing stop wont let you get on one long enough to take advantage.

(2) Most think the reason is to maximise profit by not giving back much---well that to is true---so how do we over come (1) and why should you place a trailing stop---there is a correct use which satisfies both 1 & 2

At least you had a go and your thinking!

To confuse the issue (in my mind) there is the 'breakeven stop' so that would be another type of stop which gives even less leeway for a volatile share, especially if it is moved up asap to the entry price (ignoring brokerage). I suppose if the support and technical levels correspond then that is okay (to move it up fast).

As for your two points tech- do we let the set-up which triggerred our entry play itself out before setting a trailing stop? ie stop should be outside the set-up range and set at the failure level, that way it's not interfering with the reason you entered. So if you entered a channel you'd have your stop below the lower support line all the time. Then maybe once the price has taken off upwards (when long) you can apply either a tested trailing stop (eg an 180 day EMA as in techtrader) or look for new support levels or use bollinger bands or something like that.

Just guesses here on my part as I'm trying to work this one out too (eg my recent, uneventful, PRK trade), it's difficult for me to apply in practice, still looking for a set guideline to write into my plan?! Do you think it is possible to have one rule in relation to stops/trailing stops which you can apply consistently? I assume you've done it with the techtrader 180EMA but what about the initial days or weeks of a trade when it's not quite going anywhere but is just around the entry price? Do you also use a time stop?? or would it be obvious from the setup (the reason you entered) if the price didn't move as expected?

 

[tech/a]

Trailing stops should be placed to protect an extra ordinary gain.

If an instrument rises at a rate well above the norm,it may gain more than it would normally in 6 mths.(as an example) it is here that the extra ordinary profit should be protected with a trailing stop.

The reason for the trailing stop is to protect extra ordinary profit which isnt likely to be seen again.

One way of guaging extra ordinary is to rate Trends or Price Moves.

Say adding 30-50% to price.Suggested Trailing stops

Vertical--straight up.---Very close EG the close of the previous day.
70 degrees very quick rise---- low of the previous day
60 degrees still a quick rise----Parabolic SAR.
45 degrees------Normal exit this is a normal trend angle.

 

[markrmau]

Unfortunately, specifying this as an angle (70degrees) makes your criteria dependent on scales (time and price) which you draw your chart with.

For 45 degrees, are you thinking about 1% per day? or a little less, 5-10% /month??

 

[tech/a]

Mark.

Yes thats true

Arithmetic or Log?
I think most can recognise a vertical rise in any time and price.
These price hikes occur in short timeframes thats why they are outliers and as such give an extra ordinary oppotunity to profit a larger take than normal.
As the extent of the rise cannot be known until its over a trailing stop helps trap profit when the corrective fall appears.

QUESTIONS

(1) What should we be trying to achieve with our choice of exit?
(2) How can we guage wether it is appropriate?

 

[TjamesX]

Maybe a good picture of a recent vertical example;

GDY - it was up there in the himilayas for just two days, before coming back to earth. The movement was completely abnormal, and a result of good news that got waaaay ahead of itself.

 

[tech/a]

TJ

Thanks
certaintly a great example where the whole move equated to more than the previous years.By locking in the majority of that profit then you could have gained possibly more than this stock will ever be worth.

 

[Milk Man]

Unfortunately, specifying this as an angle (70degrees) makes your criteria dependent on scales (time and price) which you draw your chart with.

For 45 degrees, are you thinking about 1% per day? or a little less, 5-10% /month??

I realised this the other day when trying to quantify rallies/trends. Straight up is obviously easy, as tech points out, but as far as i can fathom its a matter of relativity with the rest. If the stock goes into a steep incline relative to its past performance then obviously it cant hold. Or am i wrong? Maybe the stock wasn't going anywhere; then an apparently steep rise would be just the resumption of a sustainable trend. To be right on the money the trend would probably have to be quantified in percentage terms or a set scale used.