Calculating stops.

J

jbla

Hello,

I thinks most traders will agree to the importance of stops. But I think some are lost (I suppose I can put myself in that category some of the time) as to which Stop ideas/techniques to use when trying to calculate the proper Stop for their style of trading.

There are those Stop ideas like; the 10% rule, basing a stop against an Indicator or TA (ex 200day MA), 1/8 under the lowest low of the last three days, or the break of a Support/Resistance level.
I can go on and on on the ways to formulate a stop.

I was hoping some of you would share with the rest of us the Stop techniques that you feel suite traders best in either a particular trading style, such as swing trading, or in all styles of trading.

Thank you,
jbla
 
My personal stop management is suited toward swing trades. The way I normally operate is that I place a stop usually 1/4-1/2 below my entry point. As soon as a stock moves in my direction, I move my stop to break even. From there, I trail my stop 1/8 for every 1/4 the stock moves. So if the trade is 2 points in the money, my stop is 1 point back, and so on. I usually have a target price I'm looking for the trade to reach, and if it does, I'll either close half my position and let the rest ride, or if the stock is looking good let the whole amount ride with a tighter stop from there, usually 1/2 point back from the current price.
 
Doesnt matter so much as long as they are placed... And depends on the type of trading you are involved in... Swing traders have a different amount of leeway than a daytrader may have... Personally, a pure dollar loss works best for me... Timing is everything in this game...Low risk entries into clearly defined chart patterns etc etc... Volatility based stops are pure garbage to me... way beyond anything I care to loose...read over Baron's couse to get an idea on a simplistic approach to stop placement...
-Hoyler
 
You should always choose a stop point purely objectively... Then size your position to fix in a percent loss.

Example... Lets say you are swing trading, and you want to use yesterdays low as a stop (50, lets say), you buy the stock at 51. Your capital is 20,000, you want to risk 2% on this trade. 20000x2%=$400... So you want to risk 400 bucks... So you trade 400 shares (your risking 1 point, so 400/1 = 400), If you bought at 50.5, and the stop was 50, you would trade 800 shares (1/2 point risk, $400/.5 = 800). In each instance you would be risking exactly 2%, no matter where you place the stop.

If you position size like this, you can focus on placing effective stops purely on the basis of strategy.
 
IMHO jmcgraw has the right idea when he says "When in doubt, sell out!".

I've said it before, and I'll say it again..."I get out when I know I'm wrong". That's really all there is to it. In daytrading you should be instantly (or close to) profitable. If you are not, then you are wrong. Close Position!

For me it is rare that a loser costs me more than $1k. At the 1k mark I know I am very wrong and I bite the bullet.

Don't make daytrading harder than it really is.

Dustin
 
I'm currently daytrading the Nasdaq100 futures and find that
putting tide stop can really wipe you clean. As I'm new to the game, I trade 1 contract at a time and put a $200 max dollar value stop. But in a volatile market, that's is really not enough unless your Bottom&Top picking is good. I also use chart indicator as a backup. By the way just out of curiosity, what is a decent consistent profit per day of a average daytrader to be consider meaningful.
 
Originally posted by warlad
By the way just out of curiosity, what is a decent consistent profit per day of a average daytrader to be consider meaningful.
More...

I would guess that the average successful daytrader is in the $800-1500 daily average range, although once you get to the $500/day then you should consider yourself successful. I would like to hear what others think.

 
Regarding the average daily profit to consider successful, I think it's a dangerous thing to compare. For someone like myself, $1000 a day average is the norm, but I know traders who are tickled pink to consistently make $200 per day. Even someone making $150 a day may be making more for a few hours' work than they could make at many all day jobs, so it's all relative.

The danger in creating monetary standards for success is that it can cause a trader who may previously have thought him or herself successful to hear someone else making X number of dollars and think that they need to keep up with the Joneses and possibly change their trading. To me, successful trading is simply being able to derive your primary income from trading, and many people have different living standards that would dictate where that is. For perspective, someone making $100 per day would gross $25,000 per year. $200 a day would gross $50,000 per year. $500 per day is $125,000 and so on. So in the end, it comes down to what's your standard of living?
 

I don't live off my trading as I live off another business I own.

By owning a business I have no pressure to make a return which helps dramatically. I hardly ever take money out of my trading account. This means my account is growing heavily.

one thing also is my return is usually a % of equity.

What I make near the beginning of the year is nothing compared to the last few months. I'm swinging for the fences near the end of the year. I have more capital near the end of the year so I can afford to risk more per trade.


Someone who is making $20,000 per year might be doing really well for some traders but he only has $20,000 in his account. Meanwhile a trader who makes $20,000 but has 2 million in his account isn't doing so well.

rtharp
 
rtharp addresses other variables that affect one's expectations. First, there are clearly some traders who derive a primary income from trading (myself included), and those who trade as a side endeavor from another career. I suppose in order to trade as a primary source of income, one needs to have a certain temperament and not feel pressure to enter bad trades, succumb to emotionalism, etc. I personally stopped working another job when I became consistently successful with my trading, and I advise anyone thinking of quitting their day job to make sure that you are capable of handling the pressure and be consistently profitable in your trading. I also have a drastically different account management, as I sweep out my profits at the end of every week, which basically amounts to my paycheck. My trading capital stays pretty much the same, but it is more than enough along with margin for me to trade whatever I like.

Again, it comes down to what your standards are. As rtharp mentioned, a person trading a $2 million account has vastly different standards than one trading a $20K account. That, and whether the trading you do is for active income or to build equity.
 
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