I’m looking for an idea how to create a stop for a short butterfly I was told that if the spreads are wide there will be triggered by the stop loss for no reason or maybe a way to adjust ?! But I’m looking to trade the weekly but they lose there value very quick so u can’t really adjust them no? What would u do to adjust a short butterfly ?
How do YOU decide where to place YOUR Stop?
- Thread starter GrowleyMonster
- Start date
what i mean to say is that a stop loss will not save you if you make bad decisions...only delay the inevitable
actually i made a unnecessary comment...that is out of topic of this thread....i apologise
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The advice you got was very good. The spread at opening / closing of the market or any other low liquidity time gets huge and it will certainly trigger your stop.
The first question you have to ask yourself is: what are you trying to achieve? Most likely, the answer will be something along the lines of "I want to manage risk".
When it comes to risk management, it is important to understand that there are TWO important variables to tweak:
- stop loss: use this to adjust the PERCENTAGE of trades you want stopped out. You don't want to set it too tight, because it will trigger too often. You don't want to set it too wide, because it will not trigger on the few outliers. So to figure out where to set your stop loss, have a look at the distribution of your trades, and make sure it triggers at a meaningful point in your tails.
- position size: use this to control your maximum RISK. The stop loss won't be able to do that for you, it is the position size that counts.
Hope this helps,
Cheers, Felix
First it would be paramount to learn about your trading timeframes in order to best answer your question.
Are you trading intraday or longer time frames ? Are you scalping or swing trading ? What data sampling rate are you using ? ( tic data, 1 minute, 5 minute, Daily, Weekly ... ? ) Are you holding on to trades for seconds, minutes, hours, days, weeks, months ?
Helps a good bit, actually. I hadn't thought of it in terms of percentage of trades that should stop out. Naturally some should, some shouldn't. Too many stop out, and there are simply too many small losses and too many commissions for trades that failed. Too few, and those losses while fewer, will be unacceptably large. Another lightbulb just came on, thanks to your reply. So I will have to tweak this as I go. What do you think is a reasonable percentage range of stopouts when daytrading stocks? Assuming a raw beginner here, which I am. Or will be, in two weeks when I get home from this job.
My position size will almost always be one lot, initially, as I will be undercapitalized until I come home again after another contract. I could immediately fund a proper day trader account, (U.S. based, PDT rule applies) but other priorities exist such as building a shop for making razors and refitting a boat I just bought for cruising and vacation liveaboard. I will probably only be playing with $10k, maybe less, initially, just to stick my toes in the water and get familiar with the markets, trading platform, etc. 6 or 8 months from now I should be able to field $30k in brokerage and have a bit more flexibility in position size and risk management. If I blow up this initial account I can afford to be philosophical about it, as it is money that I am able to risk in the interest of learning this business.
If it turns out that day trading just isn't a good fit for me, No biggie. I can accept defeat gracefully. But I am rather optimistic that I can make this pay off for me, eventually and in between jobs, (I retire in two years, is the plan, at age 62) I will be putting maximum effort into learning what works for me and making good sensible trades that stand up to scrutiny after the dust settles and I exit the position.
I will be almost exclusively intraday, most positions between 5 minutes and a half hour, I believe. Sub minute scalping is something I might try down the road a bit, but not initially. Multi day or week swing trading doesn't really interest me. One minute and five minute candles I think I can manage while I am learning. I will want a comfortable time window for making decisions in this first foray into day trading and I don't think I can do that effectively with sub minute positions, right out the gate. I might well end up doing a completely different style of trading in the future, but this will be my entry style.