Stop Losses and quick price drops

[theblip]

I use Etrade and had a conditional sell (stop loss) placed for TZN at 2.25.
The stop loss was triggered when it dropped this morning and an automatic sell order was placed at limit for 2.22.

...Unfortunately the price had left the order behind ...

What do guys with more experience do? Do you get Etrade to SMS you the moment the stop loss triggers and then run like hell to the nearest computer to check what is happening? :

 

[zzkazu]

I use BrokerOnes platform, I can set a stop loss trigger price and a limit price. The trigger will seek an exit down to (or up too if shorting) the limit price. This gives a range for you to exit upon, your risk management should be based on the range absorption.

zzkazu

 

[MichaelD]

I can set a stop loss trigger price and a limit price. The trigger will seek an exit down to (or up too if shorting) the limit price.

This is the same as what theblip did. Just as he found, such a method will not save you from a big gap which goes beyond both your stop loss trigger and your limit price.

There isn't an answer which is 100% foolproof except for GSLOs with CFDs (but that's a whole other kettle of risk management fish).

Problems which arise with intraday conditional stops;
1. Big market gaps
2. Inability to set the limit price too far away from the trigger price.
3. Inability to set the limit price simply to "At Market".
Both 2 and 3 appear to be ASX rules rather than specific broker limitations.

I used to use the following strategy - it worked reasonably well;
1. Set the stop loss trigger as per usual.
2. Set the limit to as far away as was allowed.
3. Set an SMS to be sent if the stock traded at the stop loss trigger price.
4. Find a computer to log into my broker and check for trade execution if the SMS was received.

I don't recall ever having a stop gap so far with this strategy as to require manually changing to an At Market order (but of course it CAN happen).

These days, I use End of Day stops, not intraday stops. Much less stress and more profitable overall.

 

[nizar]

These days, I use End of Day stops, not intraday stops. Much less stress and more profitable overall.

Tend to agree.
ENd of day stops will avoid getting stopped out by the market noise. ie. getting caught out by a tail.

 

[hitmanlam]

Tend to agree.
ENd of day stops will avoid getting stopped out by the market noise. ie. getting caught out by a tail.

I totally agree nizar. Had to learn this the hard way. I used to set my stop losses too tight. Got triggered on the tail. This happened to me several times. Got really frustrated at myself.

Stop loss should only be there if you think the price will collapse when it reaches that price. i.e. just under support level.

The key: Set your stop losses loose enough to allow for intra day price retracements. Stop loss should only be triggered on signal of a downtrend/price collapse!!!

 

[theasxgorilla]

4. Find a computer to log into my broker and check for trade execution if the SMS was received.

It should also probably be mentioned that for an extra $20 (or so) most brokers will take your order by phone. If you get an SMS beep and can't get to a computer just ring them and place your order that way.