Is this a good risk management strategy?

[Sure Chap]

When I enter a trade I immediately place a trailing stop at a certain percentage based on the volatility of the stock (higher volatility larger trailing stop). If it hits my stop I'm out, if my trade goes good I let my winners run. I never take a profit; I only exit my trade when the stock hits the stop loss.

 

[Redneck]

immediately place a trailing stop

Is this a good risk management strategy?.


Unequivocally..., No

Immediately or otherwise

RN

 

[Sure Chap]

Is this a good risk management strategy?.


Unequivocally..., No

Immediately or otherwise

RN

:/ I need more input.

 

[rmorse]

When I enter a trade I immediately place a trailing stop at a certain percentage based on the volatility of the stock (higher volatility larger trailing stop). If it hits my stop I'm out, if my trade goes good I let my winners run. I never take a profit; I only exit my trade when the stock hits the stop loss.

Stop losses can be very dangerous. I've seen some very bad executions over the years. Being attentive tends to work better.

 

[ETcallhome]

When I enter a trade I immediately place a trailing stop at a certain percentage based on the volatility of the stock (higher volatility larger trailing stop). If it hits my stop I'm out, if my trade goes good I let my winners run. I never take a profit; I only exit my trade when the stock hits the stop loss.

I don't know about risk, but it's too conservative a strategy to probably make money. Very difficult to make money on a trailing stop. You need a wide stop to keep from getting stopped out too often and then you have a wide stop which will give back a lot before it gets hit, and when it does get hit it has to make up for all the losing stops. Trailing stops are good for entering and if tight enough good for exiting in a very volatile market. better idea is to never take a profit and never take a loss.

 

[Sure Chap]

Stop losses can be very dangerous. I've seen some very bad executions over the years. Being attentive tends to work better.

Thanks Rmorse, I try my best to watch stocks but I only trade part time. I try to stick to stocks with high volume such as the SPY to avoid being stopped too far.

 

[Sure Chap]

I don't know about risk, but it's too conservative a strategy to probably make money. Very difficult to make money on a trailing stop. You need a wide stop to keep from getting stopped out too often and then you have a wide stop which will give back a lot before it gets hit, and when it does get hit it has to make up for all the losing stops. Trailing stops are good for entering and if tight enough good for exiting in a very volatile market. better idea is to never take a profit and never take a loss.

Thanks for the input ET, from my trades so far I've literally lost only 67 cents...I might need to make more adjustments to my strategy. I'm still learning how to trade maybe a stop loss that tightens up when it goes closer to my target price might work.

 

[Maverickz]

Stop loss orders can be a PART of risk management but certainly not the complete strategy. You also need to consider the size of trades, portion of total portfolio, plan for if the equity gaps below your stop loss, and more.

 

[syswizard]

if my trade goes good I let my winners run. I never take a profit;

How the heck are you going to make money if you never take a profit ?
You should at least employe a trailing stop loss. Again, make the amount based on the volatility.
I've heard of good results when tightening the trailing stop amount the higher the open profit becomes. Good backtesting will provide the parameters for that.

 

[Redneck]

:/ I need more input.

I could write an entire book


Using a trailing stop- you're attempting to circumvent vital trading skills

Creating / strictly following a trade plan for each trade
Learning to read PA (I mean really read it)
Accepting of the risk..., accepting of taking an actual loss.., accepting of allowing a trade to work (breath) to fruition or breakdown
Setting the stop where the trade actually breaks down

There are more - but these will suffice


One.., of the handful of reasons price gets volatile in the first place - is to hunt trailing stops (and dumbassed placed stops in general)

RN