Question about stops

I'm still pretty new at this. I've been working hard to control my risks. I calculate potential loss on every trade and set my stops accordingly. Perhaps my stops are a bit too tight but I figure I will gradually loosen them over time as I gain experience. So far I'm pleased with my progress. They've worked as expected until now.

This week I had a trade go against me. There was bad news before the opening bell and the price plummeted. By the time the market opened, the stock had lost several dollars - much more than my stop which kicked in at the opening bell but I lost more than I had planned. Still it could have been worse but it has shaken my confidence a bit.

Is there a way to set up my stop so it will work during late trading hours or early trading time before the opening? Thank you for replies!

Some spreadbet firms offer guaranteed stops for a fee (wide spread). There are options of course, but that again is another expense. You could trade a market that is 24hr and you'd mostly only have this problem at the weekends.

It's always a problem though. There's no guarantee even in a 24hr market that you get filled where you hoped.

Hi scullen - I've got to ask if you might back-track a bit and look at what stops are for, that will find you the right place to put them, which will prevent them being hit in the first place.

I'm going to have to say stops are not a way to limit losses. The TA tells you where to put the stop and there isn't (or shouldn't be) much doubt over where that is. Position sizing is the way to limit losses.

What I mean is e.g. it is wrong to buy at $10 per point at 21200 and say, OK, the most I can stand to lose is $1000 so my stop will be at 21100. The best way to identify where to put stops is from the chart; so, if there is strong support at 20800, you put your stop say 10pts below that level, as you are now seeing from your TA that a firm break of 20800 suggests the likelihood of going down further is greater than the likelihood of going back up higher. This represents a fall of 390pts from your entry, and if $1000 remains your maximum sustainable loss, you now size your position to 1000/390 = $2.50 per point.

scullen said:

I'm still pretty new at this. I've been working hard to control my risks. I calculate potential loss on every trade and set my stops accordingly. Perhaps my stops are a bit too tight but I figure I will gradually loosen them over time as I gain experience. So far I'm pleased with my progress. They've worked as expected until now.

This week I had a trade go against me. There was bad news before the opening bell and the price plummeted. By the time the market opened, the stock had lost several dollars - much more than my stop which kicked in at the opening bell but I lost more than I had planned. Still it could have been worse but it has shaken my confidence a bit.

Is there a way to set up my stop so it will work during late trading hours or early trading time before the opening? Thank you for replies!

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Strictly speaking, you are absolutely unprotected from losing all your invested capital if you take leveraged position. I reiterate, absolutely. There are market makers, dealers, which have to maintain market liquidity (i.e. allow you to sell or buy instantly), but in some exceptional cases they can withdraw from that function.

History knows many examples, but most spectacular is stock market crash in GD or more recent SNB franc unpegging from euro. Two brokers went bust in a blink of eye, as they failed to settle their heavy leveraged hedged positions with their LPs. They basically shared losses of their clients. Stops didn't work and it was a nightmare for somebody. Still there was positive moments as well. My fellow who was shorting EURCHF at Нotforex with TP at 1.20 found that his trade was closed with tremendous positive slippage, making $4 000 for him in one day.

What Tomorton said.

Stops want to be at a price level which if broken invalidates the structure and negates the trade. That could be just below a daily low or other significant price level appropriate to your timeframe.

You can have sensible views on what is driving the market today but it's all fluff if there's no trade. It will be the setup on the chart that makes a position compelling in the first place.

I get my confidence shaken regularly. No problem stay on the sidelines for a bit and think it over, costs nothing. A revenge trade or doubling down is the path to ruin. It was a **** trade first time around right? It happened you're annoyed, so would I be so what. Park it and start afresh. Halve your risk exposure for the next position, if it doesn't work out halve it again. Bring it slowly back up when you have some evidence to feel more confident.

You have to work on your overall risk levels, so even if one stock in your portfolio gaps down 50% tomorrow, the overall effect should be no more than 1-2% loss or whatever the Kelly criterion is in your strategy. Eventually you need to strive to have a system that will protect your portfolio in a broad market event like a flash crash for example - this is the holly grail of risk management...

I always guarantee my stops on spread bets and include the cost in my total risk as a lot of my trades are run overnight and over weekends. That's just my attitude towards risk, I know it's an expensive added cost and in the long run it isn't worth it but I can't handle spending an entire weekend panicking that however unlikely, I could literally be 1000 points down at the open and can do nothing about it.

Gaps can swallow your capital unexpectedly in a very short time.

Guaranteed stop losses are fine, but they're generally only offered by market makers. Nothing wrong with market makers per se, but not what everyone wants.

Another method to limit exposure is to choose a broker that offers negative balance protection, and then only deposit the minimum required to maintain your required margin.

Small stops tight stops is a road to disaster.Go for wider stops.

foroom lluzers said:

Small stops tight stops is a road to disaster.Go for wider stops.

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Small stops allow the bucketshop to make quick and frequent money. Big stops allows the bucketshop to make more money. Neither is better nor worst from all perspectives.

If there was no stop, the bucketshop will get a bit confused, and invariably will start gambling. Then you have got'em.

EnlightenedJoe said:

Small stops allow the bucketshop to make quick money. Big stops allows the bucketshop to make more money. Neither is better nor worst from all perspectives.

If there was no stop, the bucketshop will get a bit confused, and invariably will start gambling. Then you have got'em.

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I use options , believe me I don't need stops .It has changed my trading completely .

I don't get taken out of winning trades by the buckets , it helps with mindset issues like stress of getting stopped out , fear of loss and reentering trades.

All the top traders like George Sorros use options.They understand psychology.

Well, you don't have to use stops as already mentioned. However you need to use some kind of hedging to protect yourself

foroom lluzers said:

All the top traders like George Sorros use options.They understand psychology.

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But you can't point me to a single place where soros said psychology was involved in trading. So are you going to put wards in his mouth now ?

Unless you show evidence of soros using options, I am unconvinced. It seems to me only stupid people use naked options since those are negative yielding.

You don't make money by giving your money away. Only a bucketshop would suggest it. Same way they suggest on youtube videos that you can make money by taking losses.

Soros' bets against stocks came in the form of puts, or options to sell, on two exchange-traded funds that track broad market indexes.

http://www.cnbc.com/2017/02/17/george-soros-loaded-up-with-big-bets-against-the-stock-market.html

George sorros also buys options instead of taking full risks and recently purchased $264m (£193m) of the world’s largest gold miner, Barrick Gold, and acqured options to buy the GLD exchange-traded fund, which tracks how much gold is worth.


14 psychology threads were to put fear in Dark Tone , but you have to understand the psychological disadvantages of close /tight stops.Read George Sorros autobiography.

foroom lluzers said:

Soros' bets against stocks came in the form of puts, or options to sell, on two exchange-traded funds that track broad market indexes.

http://www.cnbc.com/2017/02/17/george-soros-loaded-up-with-big-bets-against-the-stock-market.html

George sorros also buys options instead of taking full risks and recently purchased $264m (£193m) of the world’s largest gold miner, Barrick Gold, and acqured options to buy the GLD exchange-traded fund, which tracks how much gold is worth.


14 psychology threads were to put fear in Dark Tone , but you have to understand the psychological disadvantages of close /tight stops.Read George Sorros autobiography.

Click to expand...

He was buying options to exercise them. You buy options to gamble. There is a huge difference. At the end of it he has assets, you have nothing but options that are worthless.

There is no psychological disadvantage to tight stops, there is only an economical one. Same disadvantage applies to wide stops. In the end both lose money. The basic economic fact is that you can't make money by losing money.