"In my opinion Stop loss should be avoid. From my point of view there are three good options for limiting the loses:
- Close the position for any rule your system is telling you
- Limit the loses by buying puts. You can sell a call on top your stop to finance part of the cover put
- Hedge you position buying any VIX ETF/ETN
- Close the position for any rule your system is telling you
- Limit the loses by buying puts. You can sell a call on top your stop to finance part of the cover put
- Hedge you position buying any VIX ETF/ETN
pixel
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The second and third suggestions work only for a small subset of stocks. Traders operating in the higher-risk speccie space won't be able to sell Puts or buy Vixen.
And your first rule is a cop-out, renaming stop-loss as one of your system rules.
Other option is see the correlation of your basket with the index and buy/sell the index future. There are too many options for hedging a portfolio. What it is important is to know why I have the stocks in my portfolio and what is my aversion to the risk. If I am playing a high risk stock then I need to be clear what is the game and how much I am able to lose. If I am investing in a long term portfolio in high dividend stock them the best option is hedge your portfolio and keep getting the dividend.
Obviously there are no one unique solution, and every solution has its pluses and its minuses that the investor/trader need to evaluate before to incorporate it in his trading plan.
pixel
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I can agree with that. Which is a far cry from your earlier statement that stop-losses be avoided. Stop-losses are essential if one doesn't want to lose an accumulated profir, let alone the initially invested capital.
Thanks for you comments pixel, I think everybody could understand my initial statement. I never use stop lost as a sell order because you cannot be sure at what price it is going to be executed. Gaps can kill an account. Anyway I only gave a couple of ideas for people to study if that can be incorporated in their trading plans for improving results. Obviously those ideas are not suitable with your trading style. I am curious in knowing which techniques do you use for controlling your losses.
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I never use traditional style stops either. I always have a 'technical' reason or rule to get out.
pixel
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I have outlined my s/l rules in an earlier post here.
I use a trailing stop from the very day I entered, regardless of the price at which I bought. It depends on, and is calculated from, a multiple of a daily ATR. That means, it gets recalculated on live charts - but only ever to the upside. And it has to be taken on a Close Below basis. Sure, if the stock happens to gap through the stop or goes into a trading halt before it gets triggered, I lose more. Trading never comes with a guarantee of anything.
Using live charts has the added advantage that I can select the set of parameters that is best suitable for the specific share and my intended trade.
Trailing stop is a good technique. I have used it in the past.
When I changed my trading style I started using different techniques and learning different investment instruments. I use a couple of systems where the stop losses reduce the benefit and increased DD.When I started programming systems I realized that in a lot of cases the Stop Loss was my enemy and I started investigating and looking for different solutions.
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Some light reading. A document I downloaded first read in 2008 !!
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A "nuts and bolts" question about the workings of trailing stops.
Background - I've historically always updated stops manually so I'm familiar with the concept of stops but not with trailing stops specifically.
On CommSec it says in regard to trailing stops (bold emphasis mine):
"Your market sell order will be placed when the share price has experienced a fall equal to or greater than the Trail Stop Value after the share price rises to or above the Trail Start Value".
Now I'm perhaps not interpreting that correctly, but to me it says there will be no stop at all unless the price first exceeds the start value. Eg (hypothetical example):
Current share price = $1.90
Stop set at 10% with Trail Start Value of $2.00
What happens if the price then goes straight down, without gaps?
Does setting that order mean I've placed a stop at $1.80 ($2.00 - 10%) and it'll trail upwards if the share price exceeds $2.00? So in the scenario of the share price falling without first having risen the stop would be triggered at $1.80?
Or does it mean that I'm setting a stop that won't operate at all since the price hasn't exceeded the $2.00 Trail Start Value? The price could fall and won't trigger the stop because, unless it first exceeds $2.00, there isn't one?
Anyone know?
Background - I've historically always updated stops manually so I'm familiar with the concept of stops but not with trailing stops specifically.
On CommSec it says in regard to trailing stops (bold emphasis mine):
"Your market sell order will be placed when the share price has experienced a fall equal to or greater than the Trail Stop Value after the share price rises to or above the Trail Start Value".
Now I'm perhaps not interpreting that correctly, but to me it says there will be no stop at all unless the price first exceeds the start value. Eg (hypothetical example):
Current share price = $1.90
Stop set at 10% with Trail Start Value of $2.00
What happens if the price then goes straight down, without gaps?
Does setting that order mean I've placed a stop at $1.80 ($2.00 - 10%) and it'll trail upwards if the share price exceeds $2.00? So in the scenario of the share price falling without first having risen the stop would be triggered at $1.80?
Or does it mean that I'm setting a stop that won't operate at all since the price hasn't exceeded the $2.00 Trail Start Value? The price could fall and won't trigger the stop because, unless it first exceeds $2.00, there isn't one?
Anyone know?
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Who is your trader?
On saxo, and Bell direct, my trailing stop does not have a trail start value, it just uses current value and is active as soon as i enter it.
I can only set it (i think and this is us the way i use them) after buying the share.
So no problem for me, but if you ask it probably means you have a different setup and different options
Not sure it helps?
Garpal Gumnut
Ross Island Hotel
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What Is a Trailing Stop? Example and How to Use It
A trailing stop is a stop order that tracks the price of an investment vehicle as it moves in one direction, but not in the opposite direction.
gg
DrBourse
If you don't Ask, you don't Get.
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IMO, Traders should not get too involved with Stop Loss points - I do not use a Conventionally Accepted Stop Loss or Trailing Stop Loss System…. I feel that those systems belong to the Longer Term Investors….
Once I have in my opinion, enough Signals/Signs from my Tools of Trade, I will act immediately…. For example if a Bearish Candle Pattern and/or my Indicators suggest that a pullback or downtrend is imminent I will follow those signals and exit the Trade immediately....
If I were to use a % Stop Loss System (of say 2%) and my Tools of Trade gave me enough signals to exit for say 0.5%, I would be crazy to hold and watch any small loss be increased just because that “% Stop Loss System” told me I had to wait till my losses reached that magical 2% - it would be easier to just give some money away.... Admittedly I sometimes exit a trade early – but I prefer to be cautious – and if my Tools of Trade suggest continued uptrend then I can easily re-enter the Trade....
The idea is to trade when there is a trade to be made, and even then you should 'Play the Trade' (like playing a Fish), you should not trade the $$$'s - get the trades right and the $$$'s will automatically follow.....
Most Traders use strict Stop Loss systems I primarily use my Indicators as my initial Stop Loss System, when they turn Negative, I jump - the other system is a "TSL" = Trailing Stop Loss of a $/c value - so had everybody been using some sort of Stop Loss they would have a small Trading Loss to use as a Tax Ded'n....
"You can assist whatever Stop Loss System you use by "Correct Stock Selection" & "Correct $$ Management" - for example - If you invest $50k in Penny Dreadful shares you will probably activate your Stop Loss System immediately, and if you are not quick enough you could lose the lot - On the other hand $50k invested in BHP shares would be a safer trade, less risk, probably less profit but better protection for your capital"....
Suggest that you try this site http://www.incrediblecharts.com/ , lots of FREE Educational Info...On the Incredible Charts Home page, top right hand side, do a search for ‘Stop Loss’...
Also see my Manual pages 112, 116 & 160... Then do a Google Search for Stop Loss - dozens of good explanations there...
A lot of Day Traders prefer to use alarms rather than Stop Loss Triggers..... Most of the Software Trading Platforms (Metastock, Incredible Charts, etc) have an alarm system that may be of use to you..... I have an average of 20-25 alarms that I review Daily.... You can usually set these alarms on a SP, an Open, a Close, a High, etc, some can be set for release of an announcement - lots of other parameters may be available depending on the program.... The obvious drawback with alarms is that you have to be online when the alarm is triggered for it to be of any value...
Cheers..
DrB.
Once I have in my opinion, enough Signals/Signs from my Tools of Trade, I will act immediately…. For example if a Bearish Candle Pattern and/or my Indicators suggest that a pullback or downtrend is imminent I will follow those signals and exit the Trade immediately....
If I were to use a % Stop Loss System (of say 2%) and my Tools of Trade gave me enough signals to exit for say 0.5%, I would be crazy to hold and watch any small loss be increased just because that “% Stop Loss System” told me I had to wait till my losses reached that magical 2% - it would be easier to just give some money away.... Admittedly I sometimes exit a trade early – but I prefer to be cautious – and if my Tools of Trade suggest continued uptrend then I can easily re-enter the Trade....
The idea is to trade when there is a trade to be made, and even then you should 'Play the Trade' (like playing a Fish), you should not trade the $$$'s - get the trades right and the $$$'s will automatically follow.....
Most Traders use strict Stop Loss systems I primarily use my Indicators as my initial Stop Loss System, when they turn Negative, I jump - the other system is a "TSL" = Trailing Stop Loss of a $/c value - so had everybody been using some sort of Stop Loss they would have a small Trading Loss to use as a Tax Ded'n....
"You can assist whatever Stop Loss System you use by "Correct Stock Selection" & "Correct $$ Management" - for example - If you invest $50k in Penny Dreadful shares you will probably activate your Stop Loss System immediately, and if you are not quick enough you could lose the lot - On the other hand $50k invested in BHP shares would be a safer trade, less risk, probably less profit but better protection for your capital"....
Suggest that you try this site http://www.incrediblecharts.com/ , lots of FREE Educational Info...On the Incredible Charts Home page, top right hand side, do a search for ‘Stop Loss’...
Also see my Manual pages 112, 116 & 160... Then do a Google Search for Stop Loss - dozens of good explanations there...
A lot of Day Traders prefer to use alarms rather than Stop Loss Triggers..... Most of the Software Trading Platforms (Metastock, Incredible Charts, etc) have an alarm system that may be of use to you..... I have an average of 20-25 alarms that I review Daily.... You can usually set these alarms on a SP, an Open, a Close, a High, etc, some can be set for release of an announcement - lots of other parameters may be available depending on the program.... The obvious drawback with alarms is that you have to be online when the alarm is triggered for it to be of any value...
Cheers..
DrB.
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Fully agree
I only use SL (trailing percentage) on the prospective shares that i buy medium long term. .
A SL there triggers on significant DD we are talking 10 to 20%.
Taken as a relative insurance.
These triggers are usually reset at dividend time, share splits etc
I find them interesting for the investors not to get tricked in a slow trend ending in hefty but smooth loss
Generally Alarm works better for Traders and Stop Loss for med to long term investors. The method is only a guide how to not lose all your hard earned in one go. As the saying goes there is more than one way to skin a cat. Figuratively speaking.
As a newbie steps into Stock Market ventures,bear in mind there will be profit and loss days. More losses than wins on your learning curve.
Just because something went wrong doesn't everything is over. There's something called Trail and Error.
I hope you don't let go to easily.
As I matured into my senior years, I chose to do quick Trading for profit. A bird on hand worth two in the Bush.
Naturally, there are a few stocks in my portfolio for med to long term hold.
As a newbie steps into Stock Market ventures,bear in mind there will be profit and loss days. More losses than wins on your learning curve.
Just because something went wrong doesn't everything is over. There's something called Trail and Error.
I hope you don't let go to easily.
As I matured into my senior years, I chose to do quick Trading for profit. A bird on hand worth two in the Bush.
Naturally, there are a few stocks in my portfolio for med to long term hold.
Alarm and Stop Loss strategies cater to different investment styles. It's essential for newbies to understand that losses are part of the learning process and that trial and error is key. Don't give up easily! As you've experienced, adapting your strategy as you mature can be beneficial. A mix of short-term trading and long-term holding can be a great approach.
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Just a question @LeFeek are you an AI experience.no offence but style is very AI ...
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Stops need to be strategic imo , pure x% down levels are a bit lazy imo , the last thing i want to do is stop out of a trade in a place where if i had no position id be buying it . Below support levels by 'x' points is my type of thing . For me stops are generally are out of the way of noise . if you use tight stops journal these and see how many trades that stopped would have performed as intended with a bit more room . Analyze your losing trades , its where you learn the most about your trading . Quantify as much as you can , excel is fine for this to start with . Rising volatility should add some context to stop placement , tight stops in rising vol will generally get you whipped out quick smart . High vol for inexperienced traders should be counteracted with smaller position size and looser stops imo . Will equalize the risk for each trade
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@Smurf1976
If you use the Commsec Trailing Sell CO it won't activate until price trades above the "starts at" price and won't trigger a sell order until price falls by the amount you set. If price falls there's no sell order in the market to protect you.
A Falling Sell CO will be required if you want a sell order to trigger in the event of a price fall.
A note here, Commsec will try to execute your online orders but don't guarantee the result will be exactly as you desired.
Only use the COs in very liquid markets. Alerts and manual intervention is probably better than relying on these COs.
If you use the Commsec Trailing Sell CO it won't activate until price trades above the "starts at" price and won't trigger a sell order until price falls by the amount you set. If price falls there's no sell order in the market to protect you.
A Falling Sell CO will be required if you want a sell order to trigger in the event of a price fall.
A note here, Commsec will try to execute your online orders but don't guarantee the result will be exactly as you desired.
Only use the COs in very liquid markets. Alerts and manual intervention is probably better than relying on these COs.
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