stop losses

[barjon]

Hi everyone,

can I re-open the thorny problem of stop losses, since mine seem to be loss causers.

last week I went long on AV. @ 430 setting stop @ 420 (2 below 2/5 swing low). I was stopped out on a late morning downward spike on 15/5 and missed subsequent 15 point profit.

AND went short on BSY @ 680 setting stop @ 692 (2 above 7/5 and 7/4 intra day highs). I was stopped out by an unsustainably high opening on 13/5 and missed subsequent 15 point profit.

Do you assembled experts think the stops were too tight? Were the reasons for setting the stops at those levels reasonable? Any suggestions for alternatives?

Thanks in advance for any help since I'm at a loss (stop or otherwise!!)

John

 

[tomorton]

I would say caution is required if you're thinking of loosening stop losses. Taking smaller profits can keep you poor, but taking larger losses will wipe you out.

Don't want to get into the TA of these individual cases as its a subjective area and being right in these won't make you right in the next.

I would venture 2 things - Firstly, you could leave the TA aside at first and find an initial stop from money management - e.g. set the stop at the level at which you would lose say 1% of your total trading capital if it were hit. Use TA then to confirm it or to refine the precise stop price.

Or secondly, maybe the instruments you're trading are too volatile by nature or at least at the moment for your TA.

Just some thoughts - hope they help crystallise your thoughts.

 

[warm_machine]

Aviva, being an insurer, is going to be one of the more volatile stocks in the FTSE, essentially tracking the underlying index. So if an event causes the FTSE to spike up or down, you might find that bids/offers for Aviva are simply pulled very quickly, causing a short term spike. Once the market calms down and considers the news/data/whatever, prices then return back to normal as far as spread goes and sometimes you will find that the actual prices are not too different from the pre-data/news price levels. If you feel prices will indeed calm down and return to pre-release levels, then you can probably avoid running the stop in cases involving these news/data releases - even if data does cause a surprise, as long as you are aware of what will move the market you can always close out your position, as far as stocks are concerned, with little or no price change. As for other occasions, then I can't really help you, since I'm not a directional trader and rarely use stops, at least not in the conventional way, thus I wouldn't feel comfortable recommending anything specific.
As for BSkyB and overnight stops, that's a new can of worms. Liquidity isn't great first thing in the morning and a stop of only a few points is always going to be vulnerable. A suggestion might be to cover your short prior to the close and simply reopen the following morning, possibly taking advantage of any higher bid if it's available.

 

[barjon]

Thanks tomorton and warmmachine for your help.

There seems no easy answer (is there ever!!!) but I have thought of splitting my positions and running two (or maybe more) stoplosses at different distances. At least I might salvage something at a slightly increased risk.

Thanks again.

Jon

 

[blackhawk]

You may wish to consider putting your stops on every morning a little while after the open and taking them off every evening - or at least extending them for overnight. Tedious yes, but this would stop spikes overnight or first thing in the morning taking you out but obviously cannot do anything about spikes during the day.

Regards,
Rob