Setting Limits

[carlgreen]

Hi Everyone

I need a little help.

I am working on a strategy (slowly) and have no problem setting a Stop Loss limit, I simply decide how much I am prepared to lose on any given deal, However, I am a bit stuck on to how to work out a Limit on the order?

I know everyone wants to gain as many pips as they can on each deal and lose as little as possible so I was wondering if there is a formula I should be using to set Limit/Loss levels.

Any help appreciated.

Thanks

Carl

 

[everyonerich]

buy stop = pending buy above market price
sell stop = pening sell below market price

buy limit = pending buy below market price
sell limit = pending sell above market price

 

[carlgreen]

buy stop = pending buy above market price
sell stop = pening sell below market price

buy limit = pending buy below market price
sell limit = pending sell above market price

Thanks for that, but can you put this in plain English for a thicko like me and maybe with some examples?

(Sorry to be a pain but I'm pretty new to all this and not the sharpest pencil in the box!)

Carl

 

[tomorton]

Hi carlgreen - This is a more fundamental issue than most people will tell you but the basic principles are -
1. always use a stop
2. make sure your stop is ouside the range of 'noise' so you don't get stopped out before your position has had time to break into profit
3. if hit, your stop should prevent you losing more than 2% of your capital on each trade
4. your profit target should be 2 or 3 times further from entry than your stop
5. never move your stop wider

You will see that these rules relate the placing of the limit to the stop, which is all very sensible, but I have a problem with the 2x or 3x multiple for setting a profit target. Some traders work out the furthest point they can place their stop, and then just apply a 3x multiple to get the profit target, with no regard to the TA of the instrument to confirm any realistic likelihood price can do so well.

So I would be prepared to relax rule 4, as long as my limits are being hit more often than my stops.

But rule 1 is sacrosanct. Failure to protect your capital is the only way to lose this game. Otherwise, never let your profits go back into the market.

 

[everyonerich]

Thanks for that, but can you put this in plain English for a thicko like me and maybe with some examples?

(Sorry to be a pain but I'm pretty new to all this and not the sharpest pencil in the box!)

Carl

for eg: current market price is 1.5000, if you want to buy if market reach 1.7000


u set buy stop at 1.7000, if market price going up to 1.7000 your pending order will hit.



sell stop = pending sell below market price

buy limit = pending buy below market price
sell limit = pending sell above market price

 

[carlgreen]

Hi Tomorton,
Rule 1. I understand (and apply) this on every trade.
Rule 2. How do I define the range of "Noise" This is where I believe the crux of my problem is. I don't actually understand what the range is. I have used Bollinger bands and this catches @ 95% of trading within it. I was using the upper and lower limits of the "band" to try to work out Stop and Limit levels (which I'm sure can't be right can it?)
Rule 3. I agree and implement, however I am prepared to risk 3% of capitol on each trade.
Rule 4. (See rule 2......Once I work out rule 2 I can kinda set rule 4) However, I am fortunate enough to have time on my hands and be able to "follow" the market and adjust my Limits as and when needed (to capitalise on any run)
Rule 5. I never would! (have done it once and learnt my lesson BIG time )

Carl

 

[carlgreen]

for eg: current market price is 1.5000, if you want to buy if market reach 1.7000


u set buy stop at 1.7000, if market price going up to 1.7000 your pending order will hit.



sell stop = pending sell below market price

buy limit = pending buy below market price
sell limit = pending sell above market price

So let me see if I have got this.....
Market price is 1.5000, I set a Buy order at say 1.7000 and my order is filled.
At this point the Current price is 1.7000 (and I have gone Long)
What your saying is set my Stop at 1.5000 or lower (sell stop = pending sell below market price which was 1.5000 but is now 1.7000)
As for the rest of it......still double dutch!

Carl

 

[everyonerich]

So let me see if I have got this.....
Market price is 1.5000, I set a Buy order at say 1.7000 and my order is filled.
At this point the Current price is 1.7000 (and I have gone Long)
What your saying is set my Stop at 1.5000 or lower (sell stop = pending sell below market price which was 1.5000 but is now 1.7000)
As for the rest of it......still double dutch!

Carl

actually i have not tell anything about where you should put your stop loss..

lets say current market price is 1.5000, and assume, you have a strategy and wanted to buy at higher than current market price. then you can use "buy stop" order.


"buy stop" = set any price higher than current market price. this is pending buy order

"sell stop" = set any price lower than current market price. this is pending sell order

buy limit = pending buy order below current market price
sell limit = pending sell order above current market price

 

[carlgreen]

everyonerich, I understand what you are saying regarding the "buy Stop" and "Sell Stop" orders and thank you for the information, However, I thought the explanation in your post was trying to answer my original question and I just did not understand it.

Maybe I have not expressed it in the best manner.......so I will try again.....

If I am In a trade, either Long or Short, How can I decide what my Stop Loss and Profit Limit levels should be set at, without just guessing?

Carl

 

[tomorton]

Hi Tomorton,
Rule 1. I understand (and apply) this on every trade.
Rule 2. How do I define the range of "Noise" This is where I believe the crux of my problem is. I don't actually understand what the range is. I have used Bollinger bands and this catches @ 95% of trading within it. I was using the upper and lower limits of the "band" to try to work out Stop and Limit levels (which I'm sure can't be right can it?)
Rule 3. I agree and implement, however I am prepared to risk 3% of capitol on each trade.
Rule 4. (See rule 2......Once I work out rule 2 I can kinda set rule 4) However, I am fortunate enough to have time on my hands and be able to "follow" the market and adjust my Limits as and when needed (to capitalise on any run)
Rule 5. I never would! (have done it once and learnt my lesson BIG time )

Carl

Hi Carl -

Rule 2- Bollinger Bands are based on close values rather than the highs and lows or daily range so you might find that they are miles away from a sensible stop position, forcing you into a tiny position to comply with your 3% rule. A rationale many use is that the stop should be at the earliest point derived from TA which would prove that your entry and direction are now wrong. So just below (above) significant support (resistance) if you're long (short), so that if this fails you are out. Depends on your strategy. Some people use ATR, though my Sharescope version annoyingly doesn't offer this. In swing trading, typically the low of the day's range marks the entry point short, and the high is the stop: so price has a whole day's typical range to run before it triggers the stop, usually enough to avoid a 'noise' spike, and if the high was exceeded, I wouldn't want to be short anyway. some trial and error and backtesting would be useful.
Rule 3 - 3% is fine, you'd still have to be stopped out a whopping 23 times in succession to be down 50%.
Rule 4 - If you can push your target further into the black and still protect your gains, excellent work.

 

[everyonerich]

everyonerich, I understand what you are saying regarding the "buy Stop" and "Sell Stop" orders and thank you for the information, However, I thought the explanation in your post was trying to answer my original question and I just did not understand it.

Maybe I have not expressed it in the best manner.......so I will try again.....

If I am In a trade, either Long or Short, How can I decide what my Stop Loss and Profit Limit levels should be set at, without just guessing?

Carl

actually every strategy has different stop loss, even tomorton didnt really say what exactly the amount of stop loss because some might work for certain people then others might not.

in my opinion, set your stop loss in the zone where the trend has confirmed going opposite against your trade or the best stop loss is how much you willing to lose..?

 

[carlgreen]

Thanks to both of you

Very helpful (once again) Merry Christmas

Carl

 

[theroguetrader]

stop order

Hi Carl,

When placing stops - try not to think of them in " monetary terms " - as in " maximum i can loose " scenarios.. !!
That will be just an " arbitrary " number with no " spacial relationship " between it and the price on the chart your using it against..!!

Try to be selective, and take the trades with the HIGHEST - RISK / REWARD ratio - !!
trades with entries "closest " to trend lines - (support and resistance) - will be the LEAST risky - because your stop will be the SHORTEST distance from the price and the " PROFIT POTENTIAL " is GREATEST....!!

(this is an example where everyone would have been stopped out) - you cant fully prepare for something like that, all you can do,is try your best..!!
(170 years of history down the pan - v sad) :-0


If a markets price is 1.5000 and you bid 1.7000 and you get filled - yes " your position is long ", BUT the market your trading in " might " be short and you might just have bought at the " top " of a move - the price could reverse, stop you out - and then continue upwards .. !! Try not to pick tops and bottoms - (old cliche, but very true) -
Hope its all goin well

James