Stop-Loss strategy when in profit?

[MuniMaker]

Hi,

My first post here so please be gentle . I'm fairly new to spreadbetting, having recently chosen it as a tax-free method of supplementing my regular shares investments.

So far, I've been extremely lucky in that three or four of my chosen investments (i.e. bets) have delivered a fantastic profit (like £6.5K in total for an initial £2K risk). I'd really like some advice/ideas now on what is the best way to use stop losses to protect my profits.

The shares in question are high-risk AIM shares and the bets are all quarterly futures. Recent and impending news and ongoing/imminent activities have given the share prices a huge boost but there is potential for much much more with expected volatility. I don't want to miss out on this, but as nothing is ever guaranteed, I want to make sure I don't lose the majority of the profit if things turn sour.

The main question in my mind is whether to set really tight stop losses on the premise that if the prices do go down I'll probably be able to get back in lower at some point, or whether to leave the stops fairly wide and ride the storms (I've already moved them past the entry point to reduce risk to capital). Or perhaps there is some other strategy I should consider as well?

TIA for any advice/tips on the best way to manage this fortunate position.

MuniMaker.

 

[Black Swan]

Difficult for me to offer a suggestion given I only trade forex were I use a (manual) trailing loss system based on the closing values of the previous 2 candles, I revert to a fixed stop and TP limit when asleep..the TP is generally 50, 70 or 100 pips..

This differs from trading shares as I'm generally only in trades for approx. a day/36 hours max and it's fast moving/liquid which isn't the same for your aim stocks - which have flattered to deceive over the past 12 months rise from the ashes...

Having said this why not base your stop on the previous candle values, or use fibs?

 

[leonarda]

Hi,

My first post here so please be gentle . I'm fairly new to spreadbetting, having recently chosen it as a tax-free method of supplementing my regular shares investments.

So far, I've been extremely lucky in that three or four of my chosen investments (i.e. bets) have delivered a fantastic profit (like £6.5K in total for an initial £2K risk). I'd really like some advice/ideas now on what is the best way to use stop losses to protect my profits.

The shares in question are high-risk AIM shares and the bets are all quarterly futures. Recent and impending news and ongoing/imminent activities have given the share prices a huge boost but there is potential for much much more with expected volatility. I don't want to miss out on this, but as nothing is ever guaranteed, I want to make sure I don't lose the majority of the profit if things turn sour.

The main question in my mind is whether to set really tight stop losses on the premise that if the prices do go down I'll probably be able to get back in lower at some point, or whether to leave the stops fairly wide and ride the storms (I've already moved them past the entry point to reduce risk to capital). Or perhaps there is some other strategy I should consider as well?

TIA for any advice/tips on the best way to manage this fortunate position.

MuniMaker.

From my experience using automated tight stops with spread betting is not such a good idea as you can easily get taken out by early morning wide spreads and volatility as well as SB company stop hunting.. I've taken advice from "The Naked Trader" book and have a wide automated emergency stop-loss say 5-8% away, but have a mental stoploss which I keep to and have a price alert set for. Of course you need to be able to logon during the day to be able to monitor/take action if needed...

 

[D70]

Hi,

My first post here so please be gentle . I'm fairly new to spreadbetting, having recently chosen it as a tax-free method of supplementing my regular shares investments.

So far, I've been extremely lucky in that three or four of my chosen investments (i.e. bets) have delivered a fantastic profit (like £6.5K in total for an initial £2K risk). I'd really like some advice/ideas now on what is the best way to use stop losses to protect my profits.

The shares in question are high-risk AIM shares and the bets are all quarterly futures. Recent and impending news and ongoing/imminent activities have given the share prices a huge boost but there is potential for much much more with expected volatility. I don't want to miss out on this, but as nothing is ever guaranteed, I want to make sure I don't lose the majority of the profit if things turn sour.

The main question in my mind is whether to set really tight stop losses on the premise that if the prices do go down I'll probably be able to get back in lower at some point, or whether to leave the stops fairly wide and ride the storms (I've already moved them past the entry point to reduce risk to capital). Or perhaps there is some other strategy I should consider as well?

TIA for any advice/tips on the best way to manage this fortunate position.

MuniMaker.

I agree with the previous post. Dont use super tight stops. The wide spread first thing will have you out in a jiffy. Around 10% away from market will keep you in (5-8%) as advised above is good enough.

But one thing not mentioned thus far.
You risked 2k, and are 6k up. So you could always reduce your position or set some targets, at which point, you could take a little off the table because your decisions are probably getting emotional. You are entering "protect profit" at all costs mode. At this point, i would really recommend reducing the position or positions. Suddenly weight is lifted off your shoulders, you have banked some profit and you can "leave the rest to run"..... it does change ones approach and definitely will stop you from running to every terminal to check the latest quote and not be on here in 2 months time saying "i was too greedy".

Good luck.

 

[MuniMaker]

Many thanks for the replies. A lot to think about, especially wrt the psychological and emotional aspects of it all. The comment about me protecting profits "at all costs" was the most useful to me. It didn't sound quite right so it made me think about exactly what cost I'm comfortable with.

I've decided that I'd hate to lose more than 25% of the maximum profit reached so if ever the price retreats enough to leave me with around 75% of the maximum then I'll close the trade. I'll do this with a mental stop loss and keep moving it up whenever a new high is reached. I'll be keeping automatic stop losses a bit wider just in case. I know this is all somewhat arbitrary, but I think I need something like this to eliminate the emotional attachment until I get more experience trading.

I'd be interested in thoughts about this approach, especially if there are any suggestions on how I might make it more optimal, more efficient or less risky.

MuniMaker.

PS. Up another £2K since the opening post so even if I lose 25% from now I've still got everything I was trying to protect before. Hope there's a lot more to go though - still to decide whether my target is new cars for missus and me or paying off the mortgage

 

[Jack Hughes]

It all depends on what you're trading and when, particularly with AIM stocks. As others have pointed out, the spread on these at the market open can easily amount to a large percentage of the price, which means a stop can be triggered and most of your profit is gone before you can say 'Warren Buffett'. Better to use mental stops and try not to panic at 8am!

 

[tomorton]

Hi MuniMaker - I am experimenting with a kind of trailing stop-loss based on closing prices. Most trailing stops are % based, so that e.g. for longs, the position is closed if price falls x% from a high. This is fine, but means that a silly spike in price can get you out for no good TA reason. This can be especially the case if you base a % stop on the high of a SB tick chart, which are often more volatile than the underlying instrument's real price charts as the price is the company's quote, not the whole market's.

I am starting to apply two rules to my swing trades - for longs -
a) exit at first close below 14EMA, if in profit: AND
b) exit at second lower close if first was below previous day's range, even if above 14EMA

I like actions based on closing prices - they are the key price per day per market as every participant has had an input and they are the price that every data source agrees on (opens especially are often quoted differently by sources, and if the high or low is also the open, these can be out also).