2% stop loss rule?

[murray t turtle]

That's mostly selection bias: the people who depended on it blew their accounts repeatedly and are no longer here to discuss it ...

%% I got in a horse race with a part Arabian horse; + Ela, good thing I was not betting on that one LOL; I did enough betting in USA pool halls.But I do like to go the other way; NOT meaning ride a horse backward, but cut way back in size when I lose. Most of my losses means the medium trend has changed, so I don't call call it gambling related. The few gamblers I have known have been smart + nice- but really that is a small sample.I would not risk anything on a lotto ticket, but did accept some as a gift[zero cost-LOL]

 

[ironchef]

That's mostly selection bias: the people who depended on it blew their accounts repeatedly and are no longer here to discuss it ...

Not quite true.

One mom and pop trader using Kelly is still here trading.

 

[Xela]

Not quite true.

One mom and pop trader using Kelly is still here trading.

Oh well, fair enough, and I hope it stays that way ... my reservations about Kelly relate to two main features: first, I think it can be very risky indeed with higher probability trades because it really takes very few accidents with those to inflict a huge drawdown on an account; secondly, using that kind of position sizing rests on knowing your expectancy very accurately and reliably, and it strikes me that some (many?) of the people trying to use it just don't. With some exceptions, of course.

 

[MarketEater]

@Xela. How do you trade? You claim to be institutional trader yet you post on elite all day long? You appear trading book smart with limited experi nce with your eloquent posts. Is this wrong?

 

[murray t turtle]

So I shouldn't day trade?

By the way, what is the logic for 7%-8%? I read O'Neil's book, at one time tried to implement his 8% rule and was stopped out on FB (at $20), GOOGL (at $500), AAPL (at $450 before split). I am still waiting for FB to get back down below $100 so I could get back in.

I no longer have an artificial 8% stop on my trades. Some coaching on this will be greatly appreciated.

Thanks.

%%
I may think about a post for 50 days, or 52 weeks/200 days.LOL-true7 or 8% is NOT artificial; its an average, battle tested average , IBD stock market system. I considered cutting a 3% loss friday on one of my weaker stocks@ 3%/+; instead did it today, it could have easiliy gone up again but did a polar bear down to 7.5% loss, weaker stock. Ironchef, you ever noticed how IBD sometimes divides charts, in to quarters.... June + SEPT==end of quarter ???? They may [NOT a prediction LOL]sell weak stock in JUNE or SEPT.... {PS One could ,on a trend day use a 2% or no stop on a trend day + just get out when wrong. BUT trend days average only one or two day per month, where they only pull back not much @ all. ],[QQQ is down 2.55% now; GOOG down 2.96 %................................................................11:06 CST]

And 7%/+requires precise timing sometimes; when you get some profits, profits + dividends, some daily losses of 0.07%, 7 or 8% makes much more sense.I could have cut a 3% loss on that weaker stock friday; but selling can be a counter trend, even in a plan, so 7.5% loss on that weaker stock is part of the plan.And thats why some will never trade,with a profit; a battle tested planned 7 or 8% loss bothers them to much.

 

[Xela]

You appear trading book smart with limited experi nce with your eloquent posts. Is this wrong?

Not at all. I'm in my 20s, for heaven's sake: how much experience do you expect me to have?

There are many people posting here regularly who have decades of experience: fairly obviously, they're all far more experienced than I am.

I post here more frequently than many members do (and perhaps more frequently than I should, admittedly), partly because I'm slightly autistic, very slightly disabled, very anti-social, and I don't go out and do other stuff nearly as much as most people do; for all these reasons I suppose the forum is, to some extent, a "substitute social-life" for me ... but don't feel sorry for me, please: I like it that way.

If (as I suspect, for you to be asking the questions above) my posts unintentionally irritate or offend you, then please accept both my apologies and my suggestion that you should resolve that situation simply by adding me to your "ignore" list, so that they'll trouble you no further.

 

[murray t turtle]

Not at all. I'm in my 20s, for heaven's sake: how much experience do you expect me to have?

There are many people posting here regularly who have decades of experience: fairly obviously, they're all far more experienced than I am.

I post here more frequently than many members do (and perhaps more frequently than I should, admittedly), partly because I'm slightly autistic, very slightly disabled, very anti-social, and I don't go out and do other stuff nearly as much as most people do; for all these reasons I suppose the forum is, to some extent, a "substitute social-life" for me ... but don't feel sorry for me, please: I like it that way.

If (as I suspect, for you to be asking the questions above) my posts unintentionally irritate or offend you, then please accept both my apologies and my suggestion that you should resolve that situation simply by adding me to your "ignore" list, so that they'll trouble you no further.

20s, OK +Ela.
Actually , looking back though the tunnel of time, we[ anybody actually] spotted some market patterns as kids, not knowing until older, they were market patterns. For example a ''NON trending, trading range repeating pattern'' The elephant in the zoo, so cool , extending his trunk to get a peanut from my hand, such fun. I watched him for some time to make sure he was not a rouge elephant,LOL-LOL Actually amazing, such a big beast could enjoy such small treat, one peanut @ a time, he was sticking his trunk thru green bars, in the zoo, too.

 

[ironchef]

Oh well, fair enough, and I hope it stays that way ... my reservations about Kelly relate to two main features: first, I think it can be very risky indeed with higher probability trades because it really takes very few accidents with those to inflict a huge drawdown on an account; secondly, using that kind of position sizing rests on knowing your expectancy very accurately and reliably, and it strikes me that some (many?) of the people trying to use it just don't. With some exceptions, of course.

Yes, using Kelly only optimizes gains but not minimizes losses so without infinite funding, eventually risk of ruin takes over. Most who uses Kelly really only trades with fraction Kelly and yes, knowing exactly what is your Kelly (exact expectancy....) is vital if you use it.

Thank you for your coaching.

 

[murray t turtle]

Yes, using Kelly only optimizes gains but not minimizes losses so without infinite funding, eventually risk of ruin takes over. Most who uses Kelly really only trades with fraction Kelly and yes, knowing exactly what is your Kelly (exact expectancy....) is vital if you use it.

Thank you for your coaching.

%% I like the principle'' beat the market '' much more than ''beat the dealer ''LOL-LOL. I dont treat drawdoWns the same as losses, even though they can be the same, especially if one risks too much per trade /investment. Mainly , for example on dailychart, lets use FB priced @ $33.777/early trend/chart. Intraday panic selling or panic buying about 95% -99% of the time i ignore that, [FB @$33.77, real early price example]as many commercials do.

BUT fast forward,; FB maybe OK , BUT FB @$200?? OK, by me; less profits, much, much less buy volume, more sell volume, FBI/SEC investigation maybe OK?? QQQ [teck benchmark] has lost about 50%/+ volume from 1999 peak, no problem,on less buy volume, still plenty liquid. BUT no way would i consider early FB risk the same as FB July-SEPT ,2018 in the historically worst quarter for tek[JUNE-SEPT] Of course ,with so many elephants, in FB , some would try to defend it.OK with me LOL

 

[gentlerich]

The 2 percent rule is a basic principal of risk management. Even if the odds are stacked in your favor,it is not advisable to risk a large part of your capital on a single trade.
How to apply 2 percent rule :

• Calculate 2% of your trading capital i.e. capital at risk.
• Deduct brokerage on buy and sell to reach at maximum permissible risk.
• Calculate risk per share – Deduct your stop loss from the buy price and add a provision of slippage. For a short trade,the procedure is reversed that is deduct the buy price from the stop loss before adding slippage.
• Then maximum no. Shares is then calculated by dividing your maximum permissible risk by risk per share.