Stop Loss - where to set it?

[gamefisherman]

When we buy from now on ....lol and I really mean it, what do people recommend setting the stop loss/falling sell at..... For example....if we bought a stock at .50 would we work on 5% or 2 cents.....what do you do and how do you work it........We need to master so any comments would be most appreciated.........

Best wishes

 

[kam75]

Re: Falling sell - where to set it?

When we buy from now on ....lol and I really mean it, what do people recommend setting the stop loss/falling sell at..... For example....if we bought a stock at .50 would we work on 5% or 2 cents.....what do you do and how do you work it........We need to master so any comments would be most appreciated.........

Best wishes

Excellent question. It depends on how much you are prepared to risk. Generally its best to place stops under previous technical support levels. The market usually does not know, nor does it care whether you're risking 5%, 10% or whatever. I use this in combination of other pivot points and fibonacci retracement levels. Trendlines are good, you may use moving averages or the average true range indicator as well.

I generally try to limit my initial risk on a trade to no more than 10% and try to get my stop up to breakeven and beyond asap. Also, the cheaper the stock, the more risk you will usually have to accept. For example, on a 50c stock, you'll have more initial percentage risk than on a $5 or $15 stock. So you have to be careful when sizing your position to work out a meaningful breakeven level.

Hope this helps.

 

[beamstas]

Re: Falling sell - where to set it?

Gamefishermen,

Try doing it the other way around

1) Determine how much you want to risk per trade.. Generally 2% of capital is normal.

2) Determine where to put your stop loss, example you might think that a stop at 40c is a good place for a stock valued 50c

3) Your risk per trade is 2% of capital, and you have for example, $100,000. This means you can risk $2000 for the trade

4) You have $2000 risk and 10c risk per share (price 50c stop loss 40c = 10c risk), so you can buy $2000/$0.10 = 20,000 shares.


Compare this to a 50c stock and you want the stop loss at 25cents, this means you can buy $2000/$0.25 = 8,000 shares.

By doing it this way you don't have to have an incredibly tight stop, ie 5% less than the price.

This method is called fixed fractional position sizing and is discussed better in most decent trading books.

Brad

 

[Aussiest]

Re: Falling sell - where to set it?

Or better yet, you could determine where you want to place your trade according to technical levels and then decide how much you want to risk.

On this short, the entry is $26.76, the stop loss is set at $27.30, just above resistance of 27. You could decide on 0.5, 1 or 2% of capital. Or, you could pick an arbitrary amount.

If you decided you wanted to risk $500.00 on this trade, your position size would be:

500/0.54 = 925 shares.

 

[Tradesurfer]

Not in disagreement with anything thats been posted. Have a different take on it with regard to understanding that each stock, etf, futures contract, Forex position has its own trading range, breathing room so to speak.

Thats why I like to use ATR to develop volatility based stops.
I previous started a thread on it so check it out here

https://www.aussiestockforums.com/forums/showthread.php?t=15975&highlight=Volatility+Stops+based+atr

 

[tech/a]

The question being "Where to set it"

(1) Initial Stop.
My personal view is that if I'm short term trading I want high return with very low risk to capital base over a very short time.
Its not un common to have 6 trades of .25 to .5% risk in play with 3 being Stopped out each day and others added--while 1 or 2 fly and return multiple Reward to risk---10-20x I use 10-60 min charts

If long term then I'm likely to add to positions which have a much higher timeframe.So will give far more room. Ive found the optimum (from testing)---regradless of method of stop placement is 8-12% of initial buy price. This gives a balance of being far enough away from most noise (SUN yesterday)--but not that far away that you find yourself lot inbetween initial buy and stop for prolonged periods---hence opportunity cost.

(2) Trailing Stops.
Again timeframe has a great deal of bearing.
ATR's are fine but setting will be to suit timeframe.
For short term I personally will use a strong indication in price and range that momentum has likely stopped, within 2 shorter confirming timeframes.These bars allow very tight stop points and re entry criteria which wont hurt the overall position strategy.

Longterm I look for market sync. as the best guide.
Strong stocks will stay out of sync longer than weak stocks so there is some warning for some trades well before they turn for extended periods.

 

[kam75]

How about: "At a level where you do not expect the market to trade, but, if it does, you sure as hell wanna be out of the stock".

 

[tech/a]

How about: "At a level where you do not expect the market to trade, but, if it does, you sure as hell wanna be out of the stock".

So when it does youve lost more than you can bare.
Now if its an exit----Outlier move---then your cooking.

 

[motorway]

Not in disagreement with anything thats been posted. Have a different take on it with regard to understanding that each stock, etf, futures contract, Forex position has its own trading range, breathing room so to speak.

Thats why I like to use ATR to develop volatility based stops.
I previous started a thread on it so check it out here

https://www.aussiestockforums.com/forums/showthread.php?t=15975&highlight=Volatility+Stops+based+atr

Do you want mountains or molehills ?
Interesting topic

What are stops for ?

Yes you can use ATR and such
to make molehills look like mountains
To keep you IN the trade

But If you want Mountains
There is nothing wrong
with using the same type of stop loss An Absolute stop loss ( derived purely from price. And more options here than you THINK more than just X points or X percent )


Such a stop loss is part of the entry
as a stop to opportunity cost/loss

Yes it stops loss
But it's true function is to

Maximize GAINS
By getting YOU OUT so you can GET IN

Not curve fitted to "BEHAVIOUR" to allow for a stocks
"character"

This can have it's place too--"Fitting"
where there are reasons ( Particular screens usually fundamental )
to want to keep IN


DO you have a HURDLE
or do you want all the Horses to look good ?

Character Changes

To amplify or Damp ? That is the question


motorway

 

[Garpal Gumnut]

The question being "Where to set it"

(1) Initial Stop.

If long term then I'm likely to add to positions which have a much higher timeframe.So will give far more room. Ive found the optimum (from testing)---regradless of method of stop placement is 8-12% of initial buy price. This gives a balance of being far enough away from most noise (SUN yesterday)--but not that far away that you find yourself lot inbetween initial buy and stop for prolonged periods---hence opportunity cost.

(2) Trailing Stops.
Again timeframe has a great deal of bearing.


Longterm I look for market sync. as the best guide.
Strong stocks will stay out of sync longer than weak stocks so there is some warning for some trades well before they turn for extended periods.

This is golden advice Tech. I only trade long term and agree.

It should be given to every person opening a broking account.

gg

 

[white_goodman]

How about: "At a level where you do not expect the market to trade, but, if it does, you sure as hell wanna be out of the stock".

exactly your stop loss is put at a place where it proves your rationale for the trade is wrong. Once you figure out that stop loss point then you figure out how many shares/lots to take based upon your risk %

 

[gamefisherman]

Thank you for all of your replies.....

 

[Prem]

I dont use stop losses

i always thought if what u bought became cheaper

then u just buy more

just pick the stocks wisely

 

[gamefisherman]

if you average down you risk chasing your losses........that is what many say..........however if you have that gut feeling that they are a good stock, and the TA indicates an forthcoming upward trend then perhaps.........

I would be careful though, as we now ALWAYS have tight stop losses on all of our trades............better to cut and run at say 5% that face an even bigger loss............lol we just learned that lesson the hardway..........never again though....."stop losses" are just that ....................

Good luck

 

[tech/a]

I dont use stop losses

i always thought if what u bought became cheaper

then u just buy more

just pick the stocks wisely

So you pick the stocks wisely and if they become cheaper just buy more.
So I suppose you could be entirely reckless and when they became dearer just sell them.

Man what have I been doing for 15 yrs!

 

[beamstas]

So you pick the stocks wisely and if they become cheaper just buy more.
So I suppose you could be entirely reckless and when they became dearer just sell them.

Man what have I been doing for 15 yrs!

Exactly.
Basic maths prevails.

You hold a $1 stock. Stock goes to 10c
You have lost 90%.

If you sold with a stop and re bought at 10c and it moves back to $1 you have made 900%.

Still holding from $1 and doubling position at 10c (avgin down) you have made 81%.

You need to take a position 1000 times larger if averaging down, to have the same affect as just cutting a loss and rebuying at another time.

Stop losses are good.

 

[NeuromanceR]

I dont use stop losses

i always thought if what u bought became cheaper

then u just buy more

just pick the stocks wisely

Someone needs to put up a chart of HIH.

 

[Prem]

by picking the stocks wisely i wouldnt have bought hih in the first place

now say i bought mqg at 60$ which i did

and then it went to 40$ (buy some more)

and then it went to 17$ ( sell my house and buy some more)

and now its $40 (sell some proportionally to how much you invested at each step) not all of it though, not yet

As long as the stock doesnt pack up ( hih, abs) then this strategy usually works

Im still new so be nice

 

[Mr J]

Im still new so be nice

Fine. Longterm survival requires risk management, and you are currently not practicing it. A stop-loss should ideally be placed at wherever the market suggests your strategy was a poor one. You should have a plan going into the trade - have an idea of how you want it to perform, and any actions that need to be taken.

then this strategy usually works

The times it doesn't you lose more than you could afford.

 

[motorway]

now say i bought mqg at 60$ which i did

and got stopped out for small loss

and then it went to 40$
and I bought many more BUT got stopped out for a small loss again


and then it went to 17$

And since I had lots of cash I bought 3.5 times more than I ever thought possible..

and now its $40

I might buy an Island and retire

motorway