Where to set stop losses??

[forefit]

So I have gone long on Silver in the daily charts and it has taken a nice sharp rise recently and I'm in the money, however my problem is now where do I set my stop losses. Previously I had used a combination of setting the stops below support levels and fibonacci retracement which has worked well.

However this sharp rise in price not shown any suitable places to put my stop losses without losing a huge chunk of my profit. I'm thinking I should be setting my stop at a percentage of the current price but I can't figure out what percentage or how I should work it out, is there perhaps I should use to figure it out, or is up to me and I how feel about it.

 

[alexander]

Check the analyis by Harris. Maybe that can help:

http://www.priceactionlab.com/Blog/2011/04/the-state-of-etfs-april-25-2011-the-week-ahead/

 

[forefit]

Thanks Alexander, this helps me on this particular trade.

But my question for future trading and for the benefit of other people reading this is how should you determine what your stop should be if say you have a share and the one day it rises by 40%. If you go and set stops below support levels and fibonacci retracement it won't work, this method I mentioned seems to work well if the price is slowly rising but not if it takes a sharp rise.

 

[shadowninja]

Depends. I'd say 44.5 simply because with that kind of move, it could easily fall back to 42 before taking off again so do you want to see that much loss or would you consider getting back in at 42, having taken some profit should it fall through 45? Where did you enter? Have you closed off some? What is your exit plan?

 

[forefit]

I enter at $36 so I'm sitting on a healthy profit, however my plan always been to have a trailing stop loss through the method I mentioned earlier which has worked well, but it is now suggesting I sell at 42 which is too much of a fall. This has meant that now I have got to change my stop loss and exit strategy, but this is how we learn trading through getting ourselves into situations like this and adapting.

How do you come to the figure of 44.5?? What maths, method or indicators did you use to reach that conclusion?

 

[shadowninja]

Good question; I should have explained my reasoning. Previous day low was around 45. The price could conceivably fall to 45 before heading north again to make new highs. You don't want to put the stop at 44.99 because you could be whipsawed. A more generous 44.5 seems appropriate. Trading is not an exact science so we have to be flexible.

 

[forefit]

Kinda getting it now, I can understand now that when a share / commodity takes a sharp rise in a short space of time it becomes volatile and is just as likely to sudden sink, so stop loses need to be tighten in these situations.

 

[shadowninja]

I wouldn't say "need". It really depends on how you trade.

 

[wackypete2]

You can use a 20 SMA as a trailing stop loss. Like anything else it's not perfect but it will perform well in many situations. A daily close below it will be your exit signal.

Remember, even if you get stopped out, no matter what exit strategy you are using, you can always get back in again if you deem it appropriate.

Peter