Stop losses

[Johno]

If your trading short term (over a couple of days, in and out) what would be your average stop loss?

 

[CanOz]

If your trading short term (over a couple of days, in and out) what would be your average stop loss?

This was explained in the other thread johnno. You determine an entry level based on a resistance level (in a long) and then a support level for you stop. Assuming you already know you risk (2% ?), you then decide how many of the instrument to buy.

Work backwards:

1.) determine risk per trade = 2% or less is good
2.) pick a stock that you want to trade
3.) look for short term support and resistance (entry and initial stop)
4.) calculate how many shares you can buy
5.) place the limit order and stop loss
6.) manage the trade


CanOz

 

[Johno]

So Canny, are you saying that its a good idea to use a stop loss of 2% on any given trade? Say my whole capital was in on various stocks, are you saying a 2% stop loss would be ok?

The problem ive been having is that ive set my stop at 5%, then the stock would rally the next day after iv pulled out. So i set it at 10%, took a loss, and low and behold the stock rallied the next day...So do I go to 15%? Im seriously considering it as the market is so volatile, anything less would just see me losing money both on the stock itself and in brokerage.

 

[Stormin_Norman]

5% is what i use on a trade.

i then determine my stop loss (under support).

then lastly i determine the size of my trade.

 

[Johno]

Stormin, how would you do that if ummmm there is no support? I love trying to catch a falling knife, even if it costs me in the short term.

 

[nomore4s]

Johno, don't take this the wrong way but if you are serious about shorter term trading you need to do alot of study. To be successful will require alot of work and study, we have all been where you are now.

YOu have totally missed what Cana was saying. The 2% rule is based on your whole trading capital and is per trade.

What you need to do is work out
1. Your entry price
2. Your stop loss price
Once you have these you can work out your position size.

EG - Buy price is $10.00, stop loss is @ $9.00 - Risk = $1.00
Total trading capital is $25,000.00 therefore 2% = $500.00
Max risk $500, so you can buy 500 shares ($500/$1 = 500)

Example 2 - Buy price is $5, stop loss is @ $4.50 - Risk = $0.50
Total trading capital is $20,000.00 therefore 2% = $400.00
Max Risk is $400, so you can buy 800 shares.

You don't need to risk 10-15% or whatever. You just need to identify where your analysis is proven incorrect and place your stop there and then work out how many shares you can buy.

FWIW I only use 1% as I found 2% was a bit high.

This is why traders look for low risk set ups as it lets them buy larger parcels and potentially more profit for the same risk.

 

[CanOz]

So Canny, are you saying that its a good idea to use a stop loss of 2% on any given trade? Say my whole capital was in on various stocks, are you saying a 2% stop loss would be ok?

The problem ive been having is that ive set my stop at 5%, then the stock would rally the next day after iv pulled out. So i set it at 10%, took a loss, and low and behold the stock rallied the next day...So do I go to 15%? Im seriously considering it as the market is so volatile, anything less would just see me losing money both on the stock itself and in brokerage.

I use less, 1% on equities and 1-1.25% on FX.

If you need to set wider stops then you compromise only the number of shares you can buy, not your risk...never compromise your risk.

The volitility is one reason swing traders are either not trading equities, or are trading shorter times frames. You not alone in your observations.

Cheers,


CanOz

 

[nomore4s]

Stormin, how would you do that if ummmm there is no support? I love trying to catch a falling knife, even if it costs me in the short term.

This will end up costing you more then short term pain especially in this market, you are just guessing/gambling

The problem ive been having is that ive set my stop at 5%, then the stock would rally the next day after iv pulled out. So i set it at 10%, took a loss, and low and behold the stock rallied the next day...So do I go to 15%? Im seriously considering it as the market is so volatile, anything less would just see me losing money both on the stock itself and in brokerage.

This is a common problem, you need to look at how you identify your trades and how/when you decide to enter. You need to be consistant in your analysis and trading system, just taking random punts will see you quickly get frustrated with the market or worse broke.

 

[nunthewiser]

stoploss?? WTF !! . why not be like many of the other traders in the various forums and never have a loss


blessem

 

[Stormin_Norman]

Stormin, how would you do that if ummmm there is no support? I love trying to catch a falling knife, even if it costs me in the short term.

i wouldnt do it

i only trade with the trend. no falling knife catching for me

stoploss?? WTF !! . why not be like many of the other traders in the various forums and never have a loss


blessem

you can buy autotraders with 97% winning trades!!!!! for only $199USD. then retire to your condo and sip martinis with high class prostitutes.

 

[Johno]

Johno, don't take this the wrong way but if you are serious about shorter term trading you need to do alot of study. To be successful will require alot of work and study, we have all been where you are now.

EG - Buy price is $10.00, stop loss is @ $9.00 - Risk = $1.00
Total trading capital is $25,000.00 therefore 2% = $500.00
Max risk $500, so you can buy 500 shares ($500/$1 = 500)

Example 2 - Buy price is $5, stop loss is @ $4.50 - Risk = $0.50
Total trading capital is $20,000.00 therefore 2% = $400.00
Max Risk is $400, so you can buy 800 shares.

QUOTE]

I have no drama with researching, i research constantly at the moment (and that will probably never stop) so that my trades get better. Theres just not a great deal of good info on stop losses out there. A lot of ideas, but who is right....or ummm righter than the other person. Im just after a general feel of what a stop loss should be.

I understand how you get those numbers and what they are there for, I just want to know what would be your stop loss on your entire capital (because i generally put the whole lot in over a few separate trades). So if my calcs are correct it would be about 10%.....right?

 

[Stormin_Norman]

i cannot recommend this post and the attached .xls enough.

http://www.mtptrader.com/showthread.php?t=1625

 

[weird]

If using intra-day stops, your stop loss should be 1 R ... that is, whatever technical stop you have determined ... then work out position sizing from that.

I got smacked severely today with a long-term trade in one portfolio, with an open loss of over 40% ... and using ATR ... this is just bad ... things just don't look good when a stock declines this much.

For this system, I am not using fixed fractional ... and in reflection this loss or more importantly this type of stock could have been avoided ... as the exit checking just contributes this as normal behavior of the stock ... dumb ... so no exit YET triggered. We learn.

Normalization, including risk, with thresholds, can be a very useful thing.

 

[Boggo]

i cannot recommend this post and the attached .xls enough.

http://www.mtptrader.com/showthread.php?t=1625

Great link Stormin, and some great links/info within that link.

Matt and Steve really hammer that aspect of trading home.

 

[beerwm]

Hi

I'd just like to know what kind of stops you all use.

I get the impression most people are using support and resistance, [are these called pivot points?]

does anyone use volitilty? maybe volume? i'm not sure what else can be useful?

ideas?

 

[Stormin_Norman]

stop losses i use fixed ones.

stop (take) profits i use indicators.

 

[CanOz]

Great link Stormin, and some great links/info within that link.

Matt and Steve really hammer that aspect of trading home.

Another good way to point out that you do not need to be right, to be profitable!

Great link!

CanOz

 

[mattyhammer]

i cannot recommend this post and the attached .xls enough.

http://www.mtptrader.com/showthread.php?t=1625

Can someone shed some light on what this excel file actually does? I read the post and watched the video and had a play with it, but I'm not sure what I'm supposed to be learning from it.......or how it will help 'me'!! Don't get me wrong tho, it is a cool piece of kit and is amazing what excel can do, I just don't know how to use it.

 

[Stormin_Norman]

dont risk too much on a single trade.

anything over 5% and youre almost guaranteed to suffer gambler's ruin.

 

[MRC & Co]

dont risk too much on a single trade.

anything over 5% and youre almost guaranteed to suffer gambler's ruin.

Even 5% is WAY too high IMO. Unless your win % is great, your risk of ruin is pretty steep.