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How To Cut Losses?what Parameters To Use?
- Thread starter dsq
- Start date
''cutting losses short'' is a generic term actually meaning that you manage your risk so a losing trade will result in a small loss (compared to the account size)
losing 1000$ on a 100k account and losing 100$ on a 10K account is the same % of risk vs the account size.
There is no ''magical'' settings, each instrument has its own volatility and risk factor. 40 cents on AAPL and 40 cents on PAL is not the same thing at all.
I suggest you keep the risk under 2-3% of your account at all times.
losing 1000$ on a 100k account and losing 100$ on a 10K account is the same % of risk vs the account size.
There is no ''magical'' settings, each instrument has its own volatility and risk factor. 40 cents on AAPL and 40 cents on PAL is not the same thing at all.
I suggest you keep the risk under 2-3% of your account at all times.
Quote from dsq:
Since cutting losses is the most important technique in successful daytrading,what parameters do daytraders here use to exit losing stock,futures trades.
For ex:do you get out when a stock goes 10,20 or 40 cents against you?
There's no one size fits all solution here because the market isn't the same each trading day and any solution given to you most likely isn't useful or is harmful because you aren't trading the same trading instrument nor the same price action.
First, if you're in the habit of switching from one trading instrument to the next...
I suggest that you stop doing that and just concentrate on understanding the price action of one trading instrument until you get a better grasp on you initial stop/loss protection.
This also implies you have an understanding of profit targets, trailing stops and warning signals that a trade is in trouble that allows you to take action long before your stop is ever hit.
Simply, most traders I've met that have problems with their initial stop/loss placements are actually having problems with their profit targets, trailing stops and any contingency plans (warning signs to reverse or exit a position) prior to the initial stop/loss being hit.
Therefore, you need to discuss the entire picture along with giving several different in-depth examples to get answers that may be useful.
Good trading and Happy New Year 2008
Mark
I trade dow stocks only.
These are pretty safe stocks so they dont swing too wildly either way.When i am trading them intraday i am looking for greater than 10cent move...I trade off intraday supprt/resistance....
On a stock like T,ko,ge i dont know how you could place tight stops without losing a lot of money if you trade it round turn3-5 times a day...if you buy T at 42.15 do u stop out at 42 10 or 42?
I base and adjsut my mental stops according to support/resistance levels of the day...If it smashes toward or through the stop area with great momentum/volume i will get out then and there or will wait for a bounce/reversal to exit position.
For instance:if i bot T at 42 15 because i saw it bounce off that two times already and up to 42.40 then i place a mental stop at 42.If the stock has a mini selloff to 41.85 to establish a new low for the day i will be looking to exit at around 42+...
My trading style is to buy oversold intraday selloffs and short overbought rallys.
Placing tight stops on dow stocks will likely get you stopped out all the time because they do have some intraday volatility.
These are pretty safe stocks so they dont swing too wildly either way.When i am trading them intraday i am looking for greater than 10cent move...I trade off intraday supprt/resistance....
On a stock like T,ko,ge i dont know how you could place tight stops without losing a lot of money if you trade it round turn3-5 times a day...if you buy T at 42.15 do u stop out at 42 10 or 42?
I base and adjsut my mental stops according to support/resistance levels of the day...If it smashes toward or through the stop area with great momentum/volume i will get out then and there or will wait for a bounce/reversal to exit position.
For instance:if i bot T at 42 15 because i saw it bounce off that two times already and up to 42.40 then i place a mental stop at 42.If the stock has a mini selloff to 41.85 to establish a new low for the day i will be looking to exit at around 42+...
My trading style is to buy oversold intraday selloffs and short overbought rallys.
Placing tight stops on dow stocks will likely get you stopped out all the time because they do have some intraday volatility.
Quote from dsq:
Since cutting losses is the most important technique in successful daytrading,what parameters do daytraders here use to exit losing stock,futures trades.
For ex:do you get out when a stock goes 10,20 or 40 cents against you?
Something I try to use for new(er) traders. "Get out if you think you can get back in at a better price." This stops them from the "deer in headlights" freeze up watching something move too much against them. I don't care if it's a longer term holding or a daytrade. Even if they get back in 25 cents lower, on 2000 shares, they've saved themselves $500.
Of course no one knows for sure that they can get back in, but with some basic tape-reading and trend following, you can certainly be right a big percentage of the time.
FWIW,
Don
my stop loss (for daytrading dow futures) is dependant on a # of factors - the setup itself, the ATR (on various timeframes), market profile levels, support/resistance, whther the trade is counter or protrend, etc tc etc
but one thing is the same no matter what
stop is set ON ENTRY
and it is NEVER moved out.
period
but one thing is the same no matter what
stop is set ON ENTRY
and it is NEVER moved out.
period
Quote from silvermotion:
''cutting losses short'' is a generic term actually meaning that you manage your risk so a losing trade will result in a small loss (compared to the account size)
losing 1000$ on a 100k account and losing 100$ on a 10K account is the same % of risk vs the account size.
There is no ''magical'' settings, each instrument has its own volatility and risk factor. 40 cents on AAPL and 40 cents on PAL is not the same thing at all.
I suggest you keep the risk under 2-3% of your account at all times.
Pardon me for being so harsh, but this is bullshit. One should never risk 2%-3% of an account on a day trade.
Since we're getting into "risk-reward" I thought I would offer this for your perusal (you'll have to scroll down for the complete article).
http://www.stocktrading.com/riskreward2.html
MONEY MANAGEMENT
--------------------------------------------------------------------------------
Risky Business
Risk/Reward In Trading
by Don Bright
--------------------------------------------------------------------------------
Every investor and trader has been taught to be fearful of risk in the marketplace. That makes sense, right? You have to be cautious with your money, right? You have to limit losses, right? Well, maybe not.
FWIW,
Don
http://www.stocktrading.com/riskreward2.html
MONEY MANAGEMENT
--------------------------------------------------------------------------------
Risky Business
Risk/Reward In Trading
by Don Bright
--------------------------------------------------------------------------------
Every investor and trader has been taught to be fearful of risk in the marketplace. That makes sense, right? You have to be cautious with your money, right? You have to limit losses, right? Well, maybe not.
FWIW,
Don
"I suggest you keep the risk under 2-3% of your account at all times"
thats for long term trades not daytrading...i am talking about 20-40 cents on dow30 stocks.NO spreads on the bid ask either...
actually i guess my madness is ok...but i am not happy with my bottom line for all the work i do....since july1st 2007 i made about 1000 trades and netted after commissions 7000$My winning trades are 90%+ because i am taking profits with as little 2 cents but mostly around 10-20 cents...however this is countered when i take a loss of 30-40 cents on a single trade that negates 10 winning trades.Half of my trades immediately go in the direction i had anticipated and half of them either dip a few cents in red before going in my favor...Some just vacillate and i get out....And my losers are usually ones that just fall apart fast and i am down 30-40 cents(loss).
Basically i am doing a lot of work and risking 30-50k every trade tomake 20-150$I rarely make over 150 on a single trade....
When i position traded in the early/mid 90s i rarely made under 3k and upwards of 10k and would avg around 4500k.... and i did maybe 12-15 trades all year!!!
I am trading with 28k capital....I trade in 1000 shares and 500 when im a little unsure.... and just 100-400 when market is wacky and i just want to dip my toes.
thats for long term trades not daytrading...i am talking about 20-40 cents on dow30 stocks.NO spreads on the bid ask either...
actually i guess my madness is ok...but i am not happy with my bottom line for all the work i do....since july1st 2007 i made about 1000 trades and netted after commissions 7000$My winning trades are 90%+ because i am taking profits with as little 2 cents but mostly around 10-20 cents...however this is countered when i take a loss of 30-40 cents on a single trade that negates 10 winning trades.Half of my trades immediately go in the direction i had anticipated and half of them either dip a few cents in red before going in my favor...Some just vacillate and i get out....And my losers are usually ones that just fall apart fast and i am down 30-40 cents(loss).
Basically i am doing a lot of work and risking 30-50k every trade tomake 20-150$I rarely make over 150 on a single trade....
When i position traded in the early/mid 90s i rarely made under 3k and upwards of 10k and would avg around 4500k.... and i did maybe 12-15 trades all year!!!
I am trading with 28k capital....I trade in 1000 shares and 500 when im a little unsure.... and just 100-400 when market is wacky and i just want to dip my toes.