Stop Losses

[awllee]

Dear All,

On the subject of stop losses, I was wondering how people set their stop losses. I am trying to work out a stop loss strategy for trading and would gladly appreciate any views.

From what I have figured out, some people operate a strict say 5% stop loss on the previous high/low or from a moving average line.

What strategies do people use in a volatile market. How would one formulise a strategy taking into account of the volatility and sector.

THe most important of all, how do you know when you're wrong about your trade.. would one adjust their stop loss depending on the trading patterns of an intraday. How long does one leave the trade as soon as they know the trade is a loser and not a whipsaw.

Cheers :cheesy:

 

[ChartMan]

Stop losses are broadly based on support and resistance. There are no hard and fast rules. At the end of the day, it comes down to how much "draw down" you are prepared to accept before the trades turns in your favour. Draw down is your running loss at any one time. If you see a big draw down, ie you enter a trade a long way off support, then reduce the size of your trade. See FTSE Beaters beginners series- he covers this in depth.

 

[Newtron Bomb]

awllee - I thought "what stop do i use?" when i first started out. Personally I trade index's which is relevant to how i select a stop loss. Some consideration to how I got to what i was comfortable with that may help you decide what i best for you.
Firstly, my stop are different on each market. This is because each market reacts differently. In respect to day trading i specialise in one market and i know it pretty well.
I wanted to know by how much on average my market retraced before continuing with its trend. I basically concluded that if the index retraced X points (and hence stopped out) then it was the wrong time to be in the market in that direction,in any case if it retraces the same x points then most likely the move will continue in that direction. Most of the time I will identify an entry to reverse my position before or around my stop. sometime my stop will be hit but such is life.
The next thing i needed to answer was, is this size of loss acceptable on every trade? If my strat hits a loosing streak (as I believe they all do at some time or another) can i take 3 then 4 then 5 loss's and continue to pull the trigger for trades 6, 7 and 8?

Try Answering these questions
1 - how much on average does my chosen instrument retrace before continuing with its move?
2 - Is this an acceptable loss with my minimum stake?

The answer to Q1 will not change much with reanalysis when the answer to Q2 is yes then will it contue to be yes after 8 loss's?

when it is I think that you will have sorted your stop loss's, position sizing and quite a few psychological aspects of trading

Hope this helps you find what works for you.

 

[JonnyT]

Some studies have shown that the most successfull systems are always in the market using Stop and reverse. These don't use stop losses....

JonnyT

 

[oatman]

An easy test is that you must always look for your exit point before you enter. You must presume the market will go in the opposite direction you have chosen. If there's no obvious support/resistance or it's further away than you can afford - then don't enter.

Good luck,

 

[wasp]

An easy test is that you must always look for your exit point before you enter. You must presume the market will go in the opposite direction you have chosen. If there's no obvious support/resistance or it's further away than you can afford - then don't enter.

Good luck,

A cunning plan....

 

[Splitlink]

Stop losses are broadly based on support and resistance. There are no hard and fast rules. At the end of the day, it comes down to how much "draw down" you are prepared to accept before the trades turns in your favour. Draw down is your running loss at any one time. If you see a big draw down, ie you enter a trade a long way off support, then reduce the size of your trade. See FTSE Beaters beginners series- he covers this in depth.

Whatever you are comfortable with. I have gone from far away stops to close ones and, frankly, although some say that a trade must have room to breath, I am more comfortable with trades with close stops. I don't even bother with where they should be logically. I think that the trade is going to move in my favour and, if it doesn't, I figure that I am better off without it.

My trading is ok. The only problem I have had is with stops, so rather than watch the trade eat away at my profits--if I have any-- I prefer to cut the trade and try again later. I have dabbled with other people's ideas,. In most cases, they don't seem to fit in with my own. Pins, LRC's, they all have their drawbacks. Much better to use my rotten, old, system and get out quick if it reverses.

Split

 

[drcha]

using ATR

I use 2*ATR(20) as a stop for long positions. If the average of ATR over the past 20 days is way out of line for some reason (e.g. merger/acquisition) then I use a value that is consistent with the past average for the security.

Incidentally, I risk 1% per position on stocks or indices. So the number of round lots is:

0.01*Acct Value / 100*2*ATR(20)

rounded down to the nearest whole number.

I move the stops up once a day, usually waiting until about 1-2 hours into the trading session, to avoid too much rock and roll.

The amount of whipsaw I get with this is comfortable for me. At times I think my stops are too tight and at other times I think they are too loose--all of which I consider a good sign.

I share your curiosity as to what others do. I'm always thinking about this and wondering if it can be improved.

On the short side, I have not yet figured out how to handle this--I am still experimenting and would like to hear about other traders' methods. I think that 2*ATR stops are probably too tight for shorts, since these tend to be very volatile.

Oh yes, also, I sometimes exit if (1) the stock trades below its 20-day MA for a couple of days, or (2) the whole market appears to be tanking, without waiting for the stop to be triggered.

 

[wildkactus]

I Like to use ATR Based stops.

Mine are a multipule of the ATR depending on the market at the time, so from 3.5 - 1ATR is my normal range, the lower the multipule the less whipsaw in the market.

If the trade is going my way I will then move the stop every 2ATR move in price.

For how much to risk per trade I use 2% of account size.

 

[Victor90]

I use 2*ATR(20) as a stop for long positions. If the average of ATR over the past 20 days is way out of line for some reason (e.g. merger/acquisition) then I use a value that is consistent with the past average for the security.

Incidentally, I risk 1% per position on stocks or indices. So the number of round lots is:

0.01*Acct Value / 100*2*ATR(20)

rounded down to the nearest whole number.

I move the stops up once a day, usually waiting until about 1-2 hours into the trading session, to avoid too much rock and roll.

The amount of whipsaw I get with this is comfortable for me. At times I think my stops are too tight and at other times I think they are too loose--all of which I consider a good sign.

I share your curiosity as to what others do. I'm always thinking about this and wondering if it can be improved.

On the short side, I have not yet figured out how to handle this--I am still experimenting and would like to hear about other traders' methods. I think that 2*ATR stops are probably too tight for shorts, since these tend to be very volatile.

Oh yes, also, I sometimes exit if (1) the stock trades below its 20-day MA for a couple of days, or (2) the whole market appears to be tanking, without waiting for the stop to be triggered.

The stop from the TurtelTraderSystem

 

[Hoggums]

If you want to avoid being stopped out then use a 3,000 pip stoploss to prevent - oh sorry wrong thread...

 

[0007]

If you want to avoid being stopped out then use a 3,000 pip stoploss to prevent - oh sorry wrong thread...

 

[Mr.J-Arthur]

3,000 pips...that'll kill ya'!

Lol.

I'm using a trading plan that uses stops @ support or if im sitting on profit, I move them upwards (or down) to protect my profit.

I also find it acceptable to place stops within your own acceptable loss. For me, if I blindly trade...I'll put my stop at 1% of my account, which means you can still be in the game for 100 trades...which will allow you to hit atleast one solid win, which you let the profits run.

So as long as you enter a trade with a sense of trend and direction, you won't be stopped out, unless you're wrong then you wait

happy fortunes