Help with setting stop loses

[GambleWithU]

I have been back (and foreward) testing a simple strategy following some upward trending stocks. I have noticed that while many of these stocks have steadily increasing levels of resistance, some have small step increases in resistance. I have also seen several posts where people suggest percentage based stop losses. ie. ... 5% My question is; would it be beter for a short to medium term trader to use trendlines and recent resistance levels to set stop loses; therefore avoiding stoping out of most good trades and still avoiding catastrphic losses?

 

[Rhody Trader]

If you're trading trends then ideally you want your exit level to only be reached as a result of a move that strongly suggests the trend you're trading is no longer at work, so I'd say your idea is on the right track.

 

[Splitlink]

If you're trading trends then ideally you want your exit level to only be reached as a result of a move that strongly suggests the trend you're trading is no longer at work, so I'd say your idea is on the right track.

Yes, I would agree. The trouble that I find with all stop losses is that they should be triggered at the close of the bar in question. (which is impossible unless one is watching it). Sickening though it may be to see the price hurtling through your stop level, it may, still, be a spike that will, and often does return below the stop level.

What to do about that? This ancient trader has not found a satisfactory solution.

 

[nfzrmn]

If you are talking about determining stop loss only in order to take small loss rather than getting the mother of losses and if u set ur profit limit or profit taking strategy while ur script goes in profit then cutting loser trades by using stop-loss with % like 5% is a good thing.....But it depends upon ur own personality, equity size and which term of trader u are......If u are a short term trader and if ur investment capital is low then u shouldn't decide ur stop-loss level over 6%.....

In case of determining exit, me as a Mechanical trader and I trade only pullbacks, I use 5%trailing stop for determining my exit both in loss and profit......I think trend followers like me should use atr based or trailing stop loss to cut the losses and let the profit run......5% trail stop means it will not a sell signal unless the price went down 5% constantly.........Say I bought a stock @100 USD and it went
down @94 USD then my stop is hit and I will take the stop loss in that case.....But if after buying a stock @100USD if it constantly raising and went straight up to 200 USD and in three days constant fall or may be 5% fall in a single day it comes @189USD then I will exit with my profit.......This trailing stop method is hard and time consuming to maintain manually..........Mechanical Traders like me has trailing stop section set in our chart........

Regards......

 

[DailyTA]

Try this in your back testing: You're entry and exit parameters should be profitable without any stop placement. After you have enough evidence that your entry / exit parameters are robust ... then you can figure out what type of outliers you need a stop to protect you against. I used to design everything around stop and limit placement, but ultimately that doesn't prove how useful each variable of your strategy is. I can try to explain more if you want...? Reply or Twitter @DailyTA_com

I have been back (and foreward) testing a simple strategy following some upward trending stocks. I have noticed that while many of these stocks have steadily increasing levels of resistance, some have small step increases in resistance. I have also seen several posts where people suggest percentage based stop losses. ie. ... 5% My question is; would it be beter for a short to medium term trader to use trendlines and recent resistance levels to set stop loses; therefore avoiding stoping out of most good trades and still avoiding catastrphic losses?

 

[RRTrader]

Stop losses are an imperfect solution to a real problem. If you use limit orders, they may not execute at all if the price is moving rapidly. If you use trade triggers (name used by TD Ameritrade) to execute a market order, they may get triggered by a glitch in the price versus a trend. To only sell when the price is really moving against you requires knowing the future, and if you knew that, you wouldn't need them. I have also seen limit orders taken out when the price was trending well away from the limit. (poor routing?)

Perhaps the best solution is to use an alert to notify you that you need to take a look at what is happening. This is also imperfect, but that's the world we live in.

 

[juniorh]

J Dalton of Mind over Markets promotes the use of structural stop losses based on Market Profile key levels as oppposed to stop losses based on an arbitrary monetary amount alone. I found this to work well for me when used in conjunction with position sizing method I use.

 

[thebeez666]

In Elders 'Come into my Trading Room' he describes a way to set stop loss called SafeZone.
Basically it tries to remove the noise (corrections) from a trending price.
Incredible Charts: Safezone Indicator
This website describes it much better than I could.
In my experience it works quite well but like any system it requires fitting to past data that could be inaccurate going forward.
Hope this helps.

 

[Enzzo]

I have been back (and foreward) testing a simple strategy following some upward trending stocks. I have noticed that while many of these stocks have steadily increasing levels of resistance, some have small step increases in resistance. I have also seen several posts where people suggest percentage based stop losses. ie. ... 5% My question is; would it be beter for a short to medium term trader to use trendlines and recent resistance levels to set stop loses; therefore avoiding stoping out of most good trades and still avoiding catastrphic losses?

Hi Gamble,
In my experience, Stop losses based in anything fixed (%, fixed amount of pips, etc) are not the best way to go.... simply because they would be placed in a random spot in the chart where they would mean nothing for the market itself...

In my opinion, one would need to place his SL in a place where he would feel totally wrong in his market move assumption if it is hit...
if you are intended to follow a bigger move, then trail your SL following this principle too, till or target is met, your SL takes you out, or price action gives you signs that something is not working as per your expectancy... that way you will give market some fair room to do its thing....

Apart from this, it is good to look at a chart and see where the most "retail" SL's would be placed, because that is a place where you wouldn't want to place yours

 

[NVP]

Yes, I would agree. The trouble that I find with all stop losses is that they should be triggered at the close of the bar in question. (which is impossible unless one is watching it). Sickening though it may be to see the price hurtling through your stop level, it may, still, be a spike that will, and often does return below the stop level.

What to do about that? This ancient trader has not found a satisfactory solution.

split your trade into smaller trades......

hunt sensible targets on one trade (to get to b/e to cover the full trade) and then make sure your stops on the remaining "runner" is wide enough to reflect the usual volatility of most markets where tight stops are always being hunted !

N

 

[simple-stock-trading]

Hi Gamble,
In my experience, Stop losses based in anything fixed (%, fixed amount of pips, etc) are not the best way to go.... simply because they would be placed in a random spot in the chart where they would mean nothing for the market itself...

In my opinion, one would need to place his SL in a place where he would feel totally wrong in his market move assumption if it is hit...
if you are intended to follow a bigger move, then trail your SL following this principle too, till or target is met, your SL takes you out, or price action gives you signs that something is not working as per your expectancy... that way you will give market some fair room to do its thing....

Apart from this, it is good to look at a chart and see where the most "retail" SL's would be placed, because that is a place where you wouldn't want to place yours

I agree that the best way is to look at chart and set stop loss level based on the trade development.

I can speak only from my experience but I use two basic techniques for stop loss setting. Both are based on some form of support and resistance. For position trades I prefer to see some swing low or swing high as good stop loss levels. For shorter swing trades I place stop loss under previous daily bars for swing stock trades.

Richard
simple-stock-trading.com

 

[theroguetrader]

place the stop at the point the set up is invalidated

 

[Scouser76]

Perhaps, rather than using a fixed amount like 5%, which I agree, doesn't take into account the market conditions, you could use a figure related to the current volatility. Maybe try and detrend the data using moving averages or channels or whatever, and then calcuate the volatility (of returns or log returns) over some period of your choosing back.

When the trend you're following is taken into account, you place your stop X std deviations away (you can choose X accordingly, through trial and error or backtesting). Not perfect by any means, but that should provide a slightly less arbitrary threshold. I.e one based on the average size of current market movements.

 

[hgh]

the basic idea is to keep money. don't lose them. so you must set a base line of the trade, if reached, do hesitate to sell it. Or you'll lose more, and during the crash, confidence lost, that's the worst thing.

 

[LOTONtech]

You can find lots of ideas for how (and how not) to use stop orders effectively in the book that is imaginatively titled: Stop Orders.

 

[C-12]

The best way is to trade without a stop and use a slightly smaller position size. You can use price alarms to monitor price action around levels where your stop would be. Most people usually put their stops around swing highs and lows and the market loves to targets these obvious liquidity areas.

If using MT4 there's a horizontal price alert indicator you can get that's quite handy called Hline Alert.

Takes a fair bit of practice but you can prevent getting spiked out of a decent position.

 

[ffsear]

The % of what you risk per trade should only relate to a financial value, and be used to size your position. It should not relate to a point on the chart or a price. The point on the chart where your stop loss is triggered should be down to your analysis.

1). Work out your entry
2.) Work out where your stop loss should be.
3.) Work out the number of pips between your entry and your stop.
4.) Divide this number the the % of your account you wish to risk per trade, to work out your positions size.