Stop losses

This is a discussion on Stop losses within the First Steps forums, part of the Reception category; Im a complete newbie so please ignore my ignorence! Client of mine made €100,000 from the BOI share collapse in ...

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Old Jun 11, 2009, 12:40am   #1
 
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Stop losses

Im a complete newbie so please ignore my ignorence! Client of mine made €100,000 from the BOI share collapse in March, with an initial investment of €10,000. Seriously risky as all the talk was about nationalisation, but he took the chance.

Anyway I always had a interest in the stcok market, but until now, i tended to focus on property. Maybe im missing something but with the stock market crash now over (hopefully), now may be a good time to get into spreadbetting. Ive done lots of research on it over the last 3 months (between 3/4 hours most evening) and I started a demo account with paddypowertrader last week. €10,000 starting and ive made about €800 so far. Ive taken small profits and cut my losses, fairly quickly. It beginners luck, im not fooling myself. But what I havnt quite mastered is the whole stop loss thing.

Can I just give an example,and please forgive me if it sounds daft. Say the Dow opens at 8750 : 8770. I want to go short. Some "experts" say to have a big stop loss, others a small one. My thinking is I would put my stop loss at say, 8790 and get out then. But why would someone put a stop of, say 9050. Surely its better to get out early?

Im sure I will look back at this question in 6 months and realise how ridiculous it sounds

Last edited by browne1230; Jun 11, 2009 at 10:33am.
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Old Jun 11, 2009, 1:01am   #2
 
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Originally Posted by browne1230 View Post

Can I just give an example,and please forgive me if it sounds daft. Say the Dow opens at 8750 : 8770. I want to go short. Some "experts" say to have a big stop loss, others a small one. My thinking is I would put my stop loss at say, 8730 and get out then. But why would someone put a stop of, say 8650. Surely its better to get out early?
it surely is better to get out early, simply because it will cost you less when you are wrong.

but your dilemma is how to know you are wrong early enough to cut the trade and possibly reverse.

the fallacy is to trade less size and widen the stop to be more liberal and give the trade 'room to breath'. unfortunately this does not always lead to better results.

the best bet is always to place your stop in accordance with the markets structure. at a logical place where your trade no longer becomes valid, since then you would have clearly be proven wrong.
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Old Jun 11, 2009, 8:54am   #3
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Um. Are you confusing 'target' with 'stop loss'?
You say you want to go short so the stop would be above the 8750:8770 you quote. For example 8830.

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Old Jun 11, 2009, 10:35am   #4
 
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Um. Are you confusing 'target' with 'stop loss'?
You say you want to go short so the stop would be above the 8750:8770 you quote. For example 8830.

Youre right and ive edited my question accordingly. forgive the newbie!
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Old Jun 11, 2009, 10:59am   #5
 
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Have they got the internet in Carlow .....?
Must be coming on since the last time I visited.



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Old Jun 11, 2009, 12:00pm   #6
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Im sure I will look back at this question in 6 months and realise how ridiculous it sounds
Yes, and unless you understand why this is I suggest you stick to the property market.
The game is less about whether to go long or short and more about where to put a stop, when to move a stop and when to cancel a stop and take your money. If you get this right then you will have nothing more to worry about.
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Thanks! The following members like this post: Neoripley
Old Jun 11, 2009, 1:40pm   #7
 
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Yes, and unless you understand why this is I suggest you stick to the property market.
The game is less about whether to go long or short and more about where to put a stop, when to move a stop and when to cancel a stop and take your money. If you get this right then you will have nothing more to worry about.
Cheers for that. But sure we all have to start somewhere. I knew nothing about property when I started but I didnt let that stop me. I just want to try and cut my teeth in trading. Only going to start with €1/2k.
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Old Jun 11, 2009, 1:47pm   #8
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Have they got the internet in Carlow .....?
Must be coming on since the last time I visited.



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Old Jun 11, 2009, 3:05pm   #9
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You place your stops using levels of support and resistance. if you were short you place your stop above a level of resistance. If you were long you need to place it below a level of support.

Look 'Support' and 'Resistance' up on investopedia
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Old Jun 11, 2009, 3:56pm   #10
 
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Hi
I have a related spreadbetting question since most UK brokers I have looked at only seem to say stop losses are not guaranteed :

I only day trade so I can manage the closed market position ok but lets suppose there is a sudden big price change - say 100's or more clicks due to non-normal market conditions - (im told by my more experienced friends this can happen) - with no guaranteed stop losses are you likely to take the full hit of this or is it more the case you might close 1 or 2 clicks below your stop loss?

Anyone have experience of this kind of thing? Perhaps suffered a loss way above their stop loss?

Ive been trading a bit with play money and was now debating opening a real account but this potential risk has spooked me a bit! I need more info to assess the risk properly and of course the brokers dont do that, they just trot out the standard stop losses are not guaranteed line!

Cheers

Arron
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Old Jun 11, 2009, 4:27pm   #11
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If your worried about gapping, trade with a broker like shortsandlongs or ODL limited risk account because there you get free guaranteed stops.
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Old Jun 11, 2009, 4:40pm   #12
j m
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Originally Posted by azzauk View Post
Hi
I have a related spreadbetting question since most UK brokers I have looked at only seem to say stop losses are not guaranteed :

I only day trade so I can manage the closed market position ok but lets suppose there is a sudden big price change - say 100's or more clicks due to non-normal market conditions - (im told by my more experienced friends this can happen) - with no guaranteed stop losses are you likely to take the full hit of this or is it more the case you might close 1 or 2 clicks below your stop loss?

Anyone have experience of this kind of thing? Perhaps suffered a loss way above their stop loss?

Ive been trading a bit with play money and was now debating opening a real account but this potential risk has spooked me a bit! I need more info to assess the risk properly and of course the brokers dont do that, they just trot out the standard stop losses are not guaranteed line!

Cheers

Arron

Depends on what you are trading and the size you are dealing with. Agree with above post. If you are just learning the game, using a spread betting company putting small trades on you can get guaranteed stops.

If one day you make it professionally then there are lots of stories of people losing big because there is no one on the other side of the market. I witnessed one of the worlds biggest traders get done two weeks ago for this in the vacinity of $170million.
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Old Jun 11, 2009, 6:00pm   #13
 
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Thanks

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Originally Posted by MikeYass View Post
If your worried about gapping, trade with a broker like shortsandlongs or ODL limited risk account because there you get free guaranteed stops.
Hey thanks for this, checked out shortsandlongs expecting to pay for the guaranteed stops in the spread but they are offering exactly the same spreads as the broker with no guaranteed stops!
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Old Jun 11, 2009, 6:09pm   #14
 
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browne1230 started this thread good stuff, thanks for that j m. Ive being doing alot of work on support/resistence. Gotta start looking at graphs as well as price movments now. baby steps I suppose........lost €70 of play money today, not the end of the world I suppose!

Last edited by browne1230; Jun 11, 2009 at 6:14pm.
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Old Jun 12, 2009, 7:33pm   #15
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good stuff, thanks for that j m. Ive being doing alot of work on support/resistence. Gotta start looking at graphs as well as price movments now. baby steps I suppose........lost €70 of play money today, not the end of the world I suppose!
Pleasure mate,

Once you understand Supp/Res the next thing you need to take into consideration is the risk reward of your trading target compared to where you would place your stop.

This is because even the best traders are only right say 60% of the time so you need to ensure the trades which you are right on make more than the losers lose. Make sense?

Dont worry about the 70 today. Dont think of it as losing money if you get stopped out. "It is just the price of doing business." Just get pissed off when you break your rules and do stupid unnecessary ****

PM me if you need any advice or have any further questions to do with anything about trading
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