How did you come up with such a specific way? Usually new people have no idea where to start.
How do YOU decide where to place YOUR Stop?
- Thread starter GrowleyMonster
- Start date
I have already been researching this for several months. A couple of years, actually. Lurked in forums, googled, bought a few books. Gave it a lot of thought. It wasn't just a pin the tail on the donkey type decision but I did want to start out in sort of a specific niche. There is an awful lot to learn, to be a knowledgeable trader in general, so I wanted to narrow it down a little. Now I find myself with more and more disposable income, and I can't invest it all in high priced booze and hookers because I am not single anymore, and GF/fiancee-to-be (just bought the engagement ring... oh how I love Amazon Prime!) makes way more money than I do so she is not a financial burden at all. I have enjoyed gambling in the past and I have always enjoyed going about it in a systematic manner with the greatest possible chance of walking away with most of what I brought to the table, if not outright wins. Day trading looks like a good fit for me, and I am not particularly discouraged by the failure rate of new traders. I have usually succeeded at everything I have ever done and the failure rate for new traders mostly serves as a warning to me, to think about what I am doing and not do anything stupid, rather than a discouragement. I am not one of those naive 80 percenters. Hope I don't sound too egotistical, but I have to accept the fact that I am pretty good at doing stuff. I put effort and thought into anything important. I have no illusions about this being easy, only confidence that I can do it.
I am just shy of 60 and have already made all the reckless decisions I will ever make. I wouldn't even be a member of this forum, on a whim, without some skeleton of a plan. Not saying that this forum is a bad place to come to figure out where to start, but I like to go about armed with a few clues already: enough to be able to ask more specific questions than "so how do I get started trading?" and have a reasonably well developed set of BS filters.
there is no easy answer to this. What you would really need to do, is to look at the Maximum Adverse Excursion of your winning trades, and try to set it such, that you don't remove too many of your winners, while avoiding the really big losses. This requires that you can backtest your strategies, or have the ability to paper trade several hundred trades. I assume here that you are more inclined to not do that :-(
So to wing it: One of my strategies, aiming to profit from short-term mean reversion, has about 65% winners. The average win is about 5.00%, while the average loss is about 4.25%. The stop-loss kicks in for about 7% of the total trades, or about 20% of the losing trades. That seems reasonable. If your stop loss is triggered for nearly every losing trade, it's probably too tight. If its only a couple percent of your losses trigger it, it's probably too wide.
Once you have your stop loss defined, you need to think about risk. You can calculate risk per share, as the difference between your entry price and your stop loss (there are situations where you might blow right through your stop loss, but that's another story). As a rule of thumb, you might want to risk 2 to 4% of your total account per trade. So you divide your total account value by your risk per share and arrive at a position size to trade.
Cheers, Felix
why use stops? they force you to freak out and re enter your trade again anyway. there are other options that make a lot more sense. think what could you do to limit risk instead of spending all that time getting an entry just to see yourself get stopped out and then a minute later the market is going the way you thought it would
Except that sometimes it DOESN't go the way you thought it would, a minute later. I get where you're coming from, but if I was feeling that way about a stock's near future short term price action, I would still place a stop order, just a looser one. Stuff happens. I don't mind if a promising trade or two gets away from me. I can handle a 2 cent or 5 cent or ten cent loss, whatever. If I see it turn around after getting stopped out, I won't kick myself or chase the stock down or up... I will just watch it for a flag or a reversal setup and maybe have another go at it if it looks promising, with a stop maybe a bit looser, maybe not, depending on how sure I am about what the stock will do. I don't have to be in on every possible setup. I don't care if I make $200k, $20k, or $2k a year after expenses, TBH. Well yeah I do care, I guess, but it is not all that important if I don't sieze every opportunity as long as the ones I do seize make me a net winner.
Your approach has merit, but I will be setting a stop when I place any short or buy order, for now. I do appreciate the reply and it does give me something to think about.
that means the strategy is wrong or the stop is in the wrong place..too tight for the market in question...
a stop for a violent trading range stop should allow for volatility and false BOs, of which there will be plenty..putting a stop below a range tight suffers from this drawbacks..false BOs which of course are called sometimes stop running...those who use this term usually have not understood the idiocracies of the market.
Well, I will HAVE to do some paper trading just so I am used to the platform and can minimize operator error and operator lag. That Maximum Adverse Excursion thing sounds like a good thing. I tried paper trading from the ship but the slow laggy satellite connection makes it impossible, and I just can't do it from the ship in any meaningful way. I do want to quickly get my first real money trades in, yeah, but I can't see making the attempt with zero familiarity with the platform in real world conditions. So MAE (well, it is a great sounding term so it should have an acronym!) is another good thing to figure out from the paper trades and yeah I think I will backtest a bit too, just to see where I should have a cutoff in general and what data point it should be related to for a particular setup.
I would love to keep risk down to 2% of my account for any one trade, but I might have to go as high as 4% or 5% at times, due to the initial small account size. It is acceptable to me, under the circumstances, until I am properly capitalized later this year. Once I am over the $25k threshhold I will certainly be keeping the risked % down to 2% max per trade.
i have always believed that instead of looking for a perfect placement of stop look for perfect market knowledge.....in either case you will not achieve it but you may get close.
if you have been losing consistently ,then you have been doing doing things reverse....you do not need a genius to tell you that.
for years i have been trying to do reverse ..but did not succeed.
I realised that many of the basic trading strategies are basically flawed.
for example buying above a good bull bar with a stop below it: often the break above the high should be sold.
when i found out this my trading turned around.
if you have got a winning strategy that makes good trading sense, stop placement will suggest itself
if you have been losing consistently ,then you have been doing doing things reverse....you do not need a genius to tell you that.
for years i have been trying to do reverse ..but did not succeed.
I realised that many of the basic trading strategies are basically flawed.
for example buying above a good bull bar with a stop below it: often the break above the high should be sold.
when i found out this my trading turned around.
if you have got a winning strategy that makes good trading sense, stop placement will suggest itself
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look I never said dont limit your loss. I said think of another way instead of using a stop loss. Like an inverse etf. there i did your thinking for you.