Overnight asks - Does Anybody Here Have Stops in Their Mutual Fund or ETF Fund? For Cryin' Out Loud!

[longandshort]

Traders (most or otherwise) do what they do and neither you, me or anyone else knows with any certainty what most do.

Meanwhile saying a P&L is unknown with a closed trade is just ignorant.

BTW ever heard of a thing called limit order?

No offense dude but you don't know enough to know that you don't know what you are talking about. A stop loss guarantees a closed trade, not a price. So pre-trade, you still have an undefined loss.

Think about an active equity mutual fund or a hedge fund with a position in a stock. If the fund size is $1B and they hold, on average, 50 positions, you're talking about an average of $20MM per name. That can represent more than 5-10% of the average daily $ volume of the stock. Exiting on a stop loss would create a huge loss for the fund -- because they would not be able to fill at a reasonable price (it would create a shock, which would push the price much further down -- especially with HFTs and short momo trading kicking in).

 

[deaddog]

I'm not saying not to use a stop loss, especially if you're trading 10-50k at a time, but there are lots of other strategies to improve risk that you may not be aware of.

I'd be interested in learning about these strategies.

#1 priority is to protect capital.
#2 priority is to take advantage of opportunities the stock market presents every so often.

I'm a retail trader with a margin account. Rarely leverage the account. Trade only stocks and only long. Risk on any one trade is limited to 1% or less of account value.

The question I ask with any strategy is what is the worst case scenario? How much can I lose?

My worst case would be a total market melt down where every position would gap past its stop.
This happened with the flash crash a few years ago. My stops are not hard stops in the market but alerts that warn me when price is getting close to my stop. So a black swan event like that didn't bother me. 2008 and 2020 gave enough warning to exit before the market took its dive.

 

[longandshort]

I'd be interested in learning about these strategies.

#1 priority is to protect capital.
#2 priority is to take advantage of opportunities the stock market presents every so often.

I'm a retail trader with a margin account. Rarely leverage the account. Trade only stocks and only long. Risk on any one trade is limited to 1% or less of account value.

The question I ask with any strategy is what is the worst case scenario? How much can I lose?

My worst case would be a total market melt down where every position would gap past its stop.
This happened with the flash crash a few years ago. My stops are not hard stops in the market but alerts that warn me when price is getting close to my stop. So a black swan event like that didn't bother me. 2008 and 2020 gave enough warning to exit before the market took its dive.

What's your average holding period?

 

[deaddog]

What's your average holding period?

Depends on the price action. If a stock keeps trending I'll stay in the trade. I cut losses quickly, at times the same day if the trade moves against me.

Typically if I pick the right stock at the right time I hold for months if not years.

 

[murray t turtle]

.......Think about an active equity mutual fund or a hedge fund with a position in a stock. If the fund size is $1B and they hold, on average, 50 positions, you're talking about an average of $20MM per name. That can represent more than 5-10% of the average daily $ volume of the stock. Exiting on a stop loss would create a huge loss for the fund -- because they would not be able to fill at a reasonable price (it would create a shock, which would push the price much further down -- especially with HFTs and short momo trading kicking in).

%%
OP asked a tricky question, putting ETFs + funds in the same question.
On ETFs, we dont have to scale in or out like funds do. But it many times makes sense to. The idea a broker or market maker may hit a posted limit order can be good profit thing/ETFs.
I wonder if even accidently selling 10% av day volume would get one a telephone call from Stock Watch??

 

[longandshort]

Depends on the price action. If a stock keeps trending I'll stay in the trade. I cut losses quickly, at times the same day if the trade moves against me.

Typically if I pick the right stock at the right time I hold for months if not years.

So you’re trading momentum with a regime-based exit. You should evaluate what drawdowns look like and then model your stop price against that, using a tiered approach. E.g. when position moves down, reduce size. When position moves up, increase size. As long as stock remains a momentum candidate hold, if momentum regime switches, exit.

You can use a stop loss order on the tiers because you’re size probably won’t clog up liquidity.

 

[SunTrader]

No offense dude but you don't know enough to know that you don't know what you are talking about. A stop loss guarantees a closed trade, not a price. So pre-trade, you still have an undefined loss.

Think about an active equity mutual fund or a hedge fund with a position in a stock. If the fund size is $1B and they hold, on average, 50 positions, you're talking about an average of $20MM per name. That can represent more than 5-10% of the average daily $ volume of the stock. Exiting on a stop loss would create a huge loss for the fund -- because they would not be able to fill at a reasonable price (it would create a shock, which would push the price much further down -- especially with HFTs and short momo trading kicking in).

No offense taken ... because I know a closed trade is a closed trade.

You talk of a stop market order as if it never gets closed.

Thanks for letting us all know the obvious, a market order, of whatever kind is at the whim, of the market. Duh!

 

[longandshort]

You didn't seem to get that in your previous post. Glad it makes sense now. If you think you have a system that gets you out at x%, and it is based upon having a stop loss order, I can guarantee you that your realized loss will be greater than x%.

Additionally, the mechanism of a stop loss order makes it inefficient for larger traders. Hence, prudent risk management is a looooot more than having an exit price pre-determined.

 

[deaddog]

So you’re trading momentum with a regime-based exit.

I'm not sure what a regime based exit is. I exit when the trend breaks.

You should evaluate what drawdowns look like and then model your stop price against that, using a tiered approach.

I assume that evaluate and model means to take an educated guess. What are the chances I guess wrong?

E.g. when position moves down, reduce size. When position moves up, increase size. As long as stock remains a momentum candidate hold, if momentum regime switches, exit.

When a position moves down (the trend changes) I don't reduce size, I exit. Trades done and I look for another opportunity. I don't see any downside to this.

You can use a stop loss order on the tiers because you’re size probably won’t clog up liquidity.

The stocks I trades are fairly liquid and I have never had a problem exiting a trade.

 

[murray t turtle]

No one has explained why you shouldn't use stops.

Stops don't prevent a loss they keep losses small and protect your capital.

%%
OP noted a ''stop for crying out loud''
Best king of stop is a profit target stop/ sure they will see it/ but they are mainly concerned with bid ask. But i would not clog up thier books with frequent stop loss orders/LOL, even if you could, with a good trending ETF . Never wear out a welcome..............................................................