Stop losses - non negotiable?

[RocketGirl]

hmm... hypothetical. Still reading up on commsec's conditional orders..

If your stoploss is triggered.. I take it an order is placed in the queue for you. Obviously the sale isn't guaranteed at your price, because the price can fall before it reaches you.. how far do you chase the loss if everytime you change your order the price drops again? Do you ever reach a point where the loss hurts that bit too much, and you figure just to hang on to it? When does it become a panic sell just coz you're watching the price plummeting? Can you not then apply the theory that a fast fall in price like that is likely to rebound at some point?

 

[tech/a]

If you place a stop order if price reaches that level your position is sold at market immediately---if another 150 people have stops set at that level and there are insufficient buyers at that level all buyers under that level are taken out to fill all stop orders. Have a look at the kangaroo tail on CEY and you'll know what I mean---last week.

This is called slippage---something that I have learnt to live with.
You get cunning setting stop orders a few points above the obvious.

 

[RocketGirl]

Ooh ah.. really? I got the impression it was just put in the queue! Yikes - I don't like at market LOL. Knowing me I'd get the tail end .. bah.

 

[MichaelD]

If your stoploss is triggered.. I take it an order is placed in the queue for you. Obviously the sale isn't guaranteed at your price, because the price can fall before it reaches you.. how far do you chase the loss if everytime you change your order the price drops again? Do you ever reach a point where the loss hurts that bit too much, and you figure just to hang on to it? When does it become a panic sell just coz you're watching the price plummeting? Can you not then apply the theory that a fast fall in price like that is likely to rebound at some point?

1. For long term systems an intraday stop hurts system performance versus a stop triggered on end of day prices.

2. When a conditional stop is triggered (eg CommSec), your order is placed in the market AT THE LIMIT YOU SET for the sell order. A big gap down can miss the price leaving your position open. You CANNOT use a conditional stop to put an order in AT MARKET.

eg. Set a conditional stop loss to trigger at 5.00. When it triggers, your instruction is to put the stock on the market AT LIMIT 4.90. Your order may or may not be filled.

3. When a stock hits its stop loss this simply means that the position has not behaved in the way you anticipated when you entered the position and so you are discarding it and moving on to the next one. Any emotion you attach to this process is yours alone.

4. Catching falling knives is not recommended if you wish to preserve your wealth. How far could ABS fall? How far could BNB fall? How far could MFT fall? "I never met a large loss that wasn't a small loss to begin with" - trading truism.

 

[stargazer]

Hi

Michael D
Set a conditional stop loss to trigger at 5.00. When it triggers, your instruction is to put the stock on the market AT LIMIT 4.90. Your order may or may not be filled.

Hi i am with Etrade and they have a range of options with conditional orders etc.

My question is if you set it up as you have indicated and say overnight there was bad news and the market opened down.

So the next morning this stock opens at say 4.60 what happens?

Is it sold or not?

If not and you were not around and it went back up to 4.90 would it then be sold on the way through because it has touched 4.90.

Cheers
SG

 

[RocketGirl]

2. When a conditional stop is triggered (eg CommSec), your order is placed in the market AT THE LIMIT YOU SET for the sell order. A big gap down can miss the price leaving your position open. You CANNOT use a conditional stop to put an order in AT MARKET.

eg. Set a conditional stop loss to trigger at 5.00. When it triggers, your instruction is to put the stock on the market AT LIMIT 4.90. Your order may or may not be filled.

Hmm.. yes, this is how I had understood it. Now I'm confused - is a conditional stop different to other stops?

4. Catching falling knives is not recommended if you wish to preserve your wealth. How far could ABS fall? How far could BNB fall? How far could MFT fall? "I never met a large loss that wasn't a small loss to begin with" - trading truism.

Too true. So are you saying you just pull out where you can regardless? It kinda feels like you're joining in the panic selling if you chase the price down trying to sell.. altho I spose you could throw in a market sell as opposed to joining queues, but I don't like them.

This is where my original question sort of comes in.. if you can see that it's a market reaction to something as opposed to something fundamental.. does this affect you executing your stoploss. I dunno.. I guess it's something I'm going to have to get a feel for, and probably learn the hard way LOL.

If not and you were not around and it went back up to 4.90 would it then be sold on the way through because it has touched 4.90.

I've wondered that too. Does setting the condition as a falling sell make the difference? So if it rises to that price it won't trigger it? Altho, it wouldn't trigger until it reached the limit which was set at 5.00.

Argh.. I dunno! LOL.

 

[Broadside]

Most has been covered here already, but some absolutes in regards to stops and trading;

1. If you do not know in advance exactly when you will exit a trade you must not enter it. The entry is easy, but the exit is where you make your money.

This aspect doesn't make sense to me, how can you set an exit point in a spec where news is unfolding before you....your exit point has to be dynamic depending on the news (I am not talking about a stop, I am talking about an exit point in profit...is that what you are referring to in point 1?

PS Doesn't even need to be a speccie...take BHP...economic conditions changed, commodity price rises you name it. I enter it at $45 today and need an exit point in mind? how about never?

 

[AlterEgo]

My question is if you set it up as you have indicated and say overnight there was bad news and the market opened down.

So the next morning this stock opens at say 4.60 what happens?

Is it sold or not?

No, it won't be.

If not and you were not around and it went back up to 4.90 would it then be sold on the way through because it has touched 4.90.

Yes, if it gets to you in the queue at 4.90. ie. there may be someone else ahead of you in the queue at 4.90. But if it went up to 4.91, then yes you'd definitely have sold it.

 

[AlterEgo]

This aspect doesn't make sense to me, how can you set an exit point in a spec where news is unfolding before you....your exit point has to be dynamic depending on the news (I am not talking about a stop, I am talking about an exit point in profit...is that what you are referring to in point 1?

PS Doesn't even need to be a speccie...take BHP...economic conditions changed, commodity price rises you name it. I enter it at $45 today and need an exit point in mind? how about never?

I believe he was probably referring to an initial stop.

 

[MRC & Co]

Hmm.. yes, this is how I had understood it. Now I'm confused - is a conditional stop different to other stops?



So are you saying you just pull out where you can regardless? It kinda feels like you're joining in the panic selling


I've wondered that too. Does setting the condition as a falling sell make the difference? So if it rises to that price it won't trigger it? Altho, it wouldn't trigger until it reached the limit which was set at 5.00.

Argh.. I dunno! LOL.

You buy at $10, you want to sell if the price hits $9 or below, you use a stop. Vice-versa (if you go short at $10 and you want to buy (cover your short, same as a stop loss on a short) at $11, use a stop order (but it would be a buy stop, not a sell stop).

You buy at $10, you want to sell if price hits $9, but don't want to sell if it gaps below that and so you set a stop limit, stop at $9, limit at $8.50 for example. If it gaps below $8.50, you will not sell because it is below your stop limit, personally, these are RISKY business to use, and I have NEVER used one.

I only use a stop limit when I initiate a position, never when covering (getting out of the position).

If you buy at $10 and want to sell if it hits $15 and take profits (profit target), use a sell limit order.

The basic order types you have to get your head around are stop, limit, stop limit.

If you are using a long-term trend following system, you would want an end of day stop, as MichaelD points out above.

Pull out regardless, and panic sell? YES, this is T/A, you are going along with the crowd, trying to predict their behaviour. If you are investing, based on fundamentals, no, you probably would not sell as price falls, unless the fundamentals have changed. You are using the crowd behaviour (T/A) to buy in cheaper.

 

[Broadside]

I believe he was probably referring to an initial stop.

that would make more sense but the wording was ambiguous

 

[MRC & Co]

This aspect doesn't make sense to me, how can you set an exit point in a spec where news is unfolding before you....your exit point has to be dynamic depending on the news (I am not talking about a stop, I am talking about an exit point in profit...is that what you are referring to in point 1?

PS Doesn't even need to be a speccie...take BHP...economic conditions changed, commodity price rises you name it. I enter it at $45 today and need an exit point in mind? how about never?

You are talking about fundamentals (F/A) or otherwise known as investing.

We are talking about trading (T/A), you use resistance, support or simply trail it with ATR (average true range), time etc.

 

[Broadside]

You are talking about fundamentals (F/A) or otherwise known as investing.

We are talking about trading (T/A), you use resistance, support or simply trail it with ATR (average true range), time etc.

Okay, I can certainly see the value of stop losses for a trader. I am not sold on stop losses for longer term investors in specs since there are often attempts to shake out a holding when a stock is on the way up. Sure if it goes sour after entry and in the negative it can be wise to exit and look elsewhere or wait for an uptrend but the thread title is "non negotiable"...from my perspective, they're certainly negotiable. Cheers.

 

[nizar]

"I never met a large loss that wasn't a small loss to begin with"

True story.

 

[MRC & Co]

Okay, I can certainly see the value of stop losses for a trader. I am not sold on stop losses for longer term investors in specs since there are often attempts to shake out a holding when a stock is on the way up. Sure if it goes sour after entry and in the negative it can be wise to exit and look elsewhere or wait for an uptrend but the thread title is "non negotiable"...from my perspective, they're certainly negotiable. Cheers.

Of course, this is why some use ATR based on shorter term MAs (say a 10 period for example). It captures recent volatility and a 3 period ATR could well and truly avoid a test.

A shake out, nothing you can do about that. Has been happening in commodities quiet often recently. But it is the results over large sums of trades. If you set reasonably (there is a vague word and upto the individual to decide) tight stops, you can cut these shake-outs short.

If the stock falls far, and you hold, what is to say it won't liquidate (one of mine did and it was 100% of my capital on my first 'investment)? Or do nothing for 10 years and erode your capital in the form of both inflation and opportunity cost.

I mix the two, I have a portion of my portfolio dedicated to smaller companies for longer-term growth potential and until the fundamentals of that company change, I will ride out the losses. I currently have 3 and they are all down, 2 of them have taken quiet a battering! But the fundamentals remain robust IMO.

The majority of my portfolio is dedicated to trading. Not so sure an investor could make great money in this environment.

Cheers

 

[cuttlefish]

This aspect doesn't make sense to me, how can you set an exit point in a spec where news is unfolding before you....your exit point has to be dynamic depending on the news (I am not talking about a stop, I am talking about an exit point in profit...is that what you are referring to in point 1?

PS Doesn't even need to be a speccie...take BHP...economic conditions changed, commodity price rises you name it. I enter it at $45 today and need an exit point in mind? how about never?

Broadside - see my posts earlier in the thread for more detail - my interpretation of MichaelD's comments is 'never enter a trade/position without knowing what criteria you will use for an exit'. This might not be a specific price it could be a trailing stop - or it might also be some fundamental criteria (e.g. operating profit falling below expectations, or production head grades being lower than expected, or commodity prices falling below a certain level).

I am primarily driven by fundamentals but also use technicals and money management to manage position sizes and exits from trades.

 

[cuttlefish]

My question is if you set it up as you have indicated and say overnight there was bad news and the market opened down.

So the next morning this stock opens at say 4.60 what happens?

Is it sold or not?

If not and you were not around and it went back up to 4.90 would it then be sold on the way through because it has touched 4.90.

Cheers
SG

Any trade that occurs below the stop loss price (i.e. $5.00), regardless of when it occurs and regardless of whether it involved a gap down to that level, will trigger the stoploss condition and cause the order to be placed in the queue at the limit price ($4.90).

So in the situation you describe - yes the stoploss condition will be triggered and an order placed in the queue at 4.90 - and if the price trades back up to that level and a hits the order it will get executed.

 

[cuttlefish]

hmm... hypothetical. Still reading up on commsec's conditional orders..

If your stoploss is triggered.. I take it an order is placed in the queue for you. Obviously the sale isn't guaranteed at your price, because the price can fall before it reaches you.. how far do you chase the loss if everytime you change your order the price drops again? Do you ever reach a point where the loss hurts that bit too much, and you figure just to hang on to it? When does it become a panic sell just coz you're watching the price plummeting? Can you not then apply the theory that a fast fall in price like that is likely to rebound at some point?

I've found this a problem with conditional orders because they get triggered on intraday movements - so its worth noting MichaelD's comment about using end of day stops vs intraday stops for longer term positions.

One option depending on what position sizes you use is to offload half and then give it 15 minutes or so to recover from the 'stop farming' exercise - but if you call it wrongly then of course it can plummet even further and you'll lose even more when you offload the second half. I guess this is really a point where it can become a bit discretionary depending on your technical and/or fundamental view on the stock and also on the volume/price/trading behaviour of the day. The day you wait for the bounce it will continue to plummet. The day you sell into the downward spike it will bounce back and you'll have sold at the bottom. Its a catch 22.

 

[stargazer]

Hi all

Thanks for your replies and explanations:

What i see confused me is this:

You read things like set a stop loss:
eg. Buy at $1 stop loss at say 90c OR set a limit of when to sell eg Buy $1 sell at $1.10. This i can understand and is straight forward.

When i went to E trade there are no stop loss options but they called them CONDITIONAL ORDERS

You have a trigger price then a sell price and also a limit price and if less than or equal to price This is just the basic one, then you have more options eg only sell if the volume is a certain level etc etc.

I just want to be sure that if i buy at say $1 and want it sold at 0.95c via a stop loss thats what it sells for.


Thats where i found it confusing but getting there..lol


cheers
SG

 

[MichaelD]

Points of clarification:

A STOP LOSS is the price point at which you decide that your analysis was incorrect and that you must exit your position. This could be defined as the CLOSE price or an intraday price.

HOW you exit the position can vary. You may choose to use your broker's conditional orders to assist you in getting out of your position immediately. You may choose to make mental note that your stop loss has been breached and then exit the position according to your plan. In my case, for my long term trend following system I check the CLOSE prices at the end of each day and if the stop loss has been breached I will close the positions the next day.

Also, when I said that "If you do not know in advance exactly when you will exit a trade you must not enter it" this meant that you had a plan for managing your trade after opening it.