Stop-Loss strategies

[barnz2k]

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.

 

[barnz2k]

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

 

[kolonel]

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.

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

 

[Timmy]

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

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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]

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.

 

[barnz2k]

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

 

[Timmy]

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.

 

[Timmy]

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.

 

[CFD]

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.

 

[Chorlton]

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

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

 

[CFD]

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

 

[howardbandy]

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

 

[stockwhizben]

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

 

[Sir Burr]

Exact opposite to going long.

Yes :kiffer:

 

[stockwhizben]

thanks!!

 

[howardbandy]

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

 

[meganut]

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

What do you mean by this?

I'm a newbie!

 

[Trembling Hand]

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.

 

[Aviator33]

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

 

[meganut]

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).

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

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

And I just love examples for my simple noggin.