Stop Loss Calculation

S

sandeepsopc

Hi All,

Can some one share on how to calculate stop loss ??
I am a newbie in Technical Analysis. Here is my experience in today's loss.

Account Capital : $3000
Ticker : CLNE
(Bracket Order) - Entry : $4.43 Target : $5.60 Stop Loss: $4.04

Finally it triggered stop loss today. I just added stop loss number but is there away or procedure to follow.

Finally any wrong with my position.
 
Hi, welcome to forum. There a couple issues I see. One is the obvious matter that you have way too little capital to trade. But assuming you want to RISK 1% of your capital ($30) then you take your stop loss difference from entry price ($4.43-4.04= 0.39) and divide RISK ($30)/ the stop loss difference 0.39 = shares to buy (76.9 shares). The problem with what you are asking is that you are asking how to determine stop loss. That is up for huge debate as to how that is done. Some use a number below a recent low, some use a multiple of ATR (Average True Range) , some just pick a spot, some choose a point where a moving average crosses over. Which is right depends on your trading style and system. However, you should be asking how do you calculate SHARES TO TRADE? Which is what I answered above. Once you know your Stop Loss price on the chart you can figure your shares. You should not be figuring shares to trade and THEN figure stop loss because then you open yourself to wild swings in balance of account. The method I described allows you to keep RISK of your account constant for all trades because the wider the stop ( say in a volitale stock like NUE) the fewer shares you trade but RISK is constant.

Last issue is that CLNE had already made a large move to the upside and was at the extreme price away from moving average. It's not wise to chase,...that's why the trade failed in my opinion. Buy closer to a moving average like it was a few days ago would be better.

Good Luck
 
See how on the daily chart the price launched from around $3.40 several days ago. The grey squiggly lines on the chart are BB and the price is showing for 5 consecutive days there is price beyond the BB. The BB is 2 standard deviations from the mean. So price for 5 consecutive days was BEYOND that. That is a sell signal I use frequently. Never buy at the outside edge of a BB. Wait for retracement to around $3.40-3.60 at most.
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Example from chart above: Nov-Feb was a downtrend. You want to trade with trends such as this, not against. Now, very little in Nov showed clear signs of the coming breakdown, so in practice trying to call tops and bottoms will be fruitless/hard. You don't want to keep banging your head against the wall, but find easy solutions that work more/better than they don't work. So you need to figure out what are the signs you need to look for for spotting beginning of trends, reconcile how much/little of the move you might catch and how to manage the trade from entry to possible exits. Stop loss should be at a place price is very unlikely to visit if your trade plan is correct, so that you avoid "guaranteed loss" every time. In practice one might not even catch 50% of the move and need to trade very very rarely, as there's just not enough information and opportunity to trade on from technical charts (except in hindsight analysis). With time, one picks up more and more possible clues though, but it's hard to exploit them all consistently. Recommended to start with just 1 simple setup and make that work before doing anything more advanced. One setup might sound simple, but price won't ever repeat perfectly and you need to be able to trade the signal for all possible future permutations of price movements.
 
sandeepsopc said:
Hi All,

Can some one share on how to calculate stop loss ??
I am a newbie in Technical Analysis. Here is my experience in today's loss.

Account Capital : $3000
Ticker : CLNE
(Bracket Order) - Entry : $4.43 Target : $5.60 Stop Loss: $4.04

Finally it triggered stop loss today. I just added stop loss number but is there away or procedure to follow.

Finally any wrong with my position.
More...

Well, there's your problem. You're using a stop loss and it's causing you to gain loss. How about that? Don't use a stop loss!

Also, you're buying a "green energy" stock. You should be shorting it. Green energy companies don't make money - they only ever lose money because nobody is going to pay 3-5x for electricity that coal, gas, and nuclear provide. Even with the climate change propaganda it's still a short.
 
I am not trying to turn this discussion to one of TA vs other methods but I agree with Simples to a large degree and disagree with Simples on several issues as well. I totally disagree with Braddock.

As far as calling tops in my opinion Simples is right TA is a form of looking at markets to see something in hindsight. Good chart readers however can read those signs to predict what is LIKELY to happen. Just like the weather man uses air pressures and barometric pressures and radars to determine what the weather is likely to be in the coming days. No different with TA. But both the weatherman and the Technical analyst have to wait for something to develop before you can make these predictions. So no you are not likely to call an exact top especially on a long time frame. But I know and have seen people call a top using candle stick, price action but not usually with indicators like MACD. I also disagree with the notion of "how little of the move you will catch". With good TA you can catch most of the move. With great TA you can catch MORE than the move by selling at extremes and buying at extremes. Look back at the weekly chart on CLNE and there was plenty to suggest a breakdown of the Nov price move. The downtrend in CLNE has been in place since 2012. Now did the OP find a trend reversal with good TA? I happen to think he may have but it may be a bit early to jump on board a long term trend and too late for short term daily trend. When weekly and daily charts match is when I have had the most success. Weekly chart is starting to look like daily chart. At the retracement is when OP will be proven right or wrong.

Braddock notion to not use stops is a contested one on this forum but I will say as you are a newbie ALWAYS USE A STOP. I always initiate trades with a stop in mind. Sometimes I put a stop loss order in place on shorter term trades and others I set a mental stop on longer term trades. But I Always have an out of where I know I am wrong. Until you develop that skill and to help you develop the skill of stop placement you should always set them. If they are always getting triggered and trade goes your way after its triggered you learned you placed them too close. But at least you didn't lose you account while learning this. Stops are essential early in ones trading career.

Braddock also says you should short CLNE because of the type of company it is. As a technician I could care less what the company does. I only care about what the charts say. Fundamental analysis is looking at that info. Some people use TA and fundamentals to trade but I don't. One could also make the fundamental argument that CLNE is a buy with all the green energy stuff Obama and Democrats support. The price of oil has risen lately and as that goes up CLNE will benefit. The chart clearly shows massive high volume buying in CLNE over the last several weeks. Seems like many people agree with the OP and not Braddock. Well I do too.

For what it's worth,...Just my 0.02
 
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eganon69 said:
I am not trying to turn this discussion to one of TA vs other methods but I agree with Simples to a large degree and disagree with Simples on several issues as well. I totally disagree with Braddock.

As far as calling tops in my opinion Simples is right TA is a form of looking at markets to see something in hindsight. Good chart readers however can read those signs to predict what is LIKELY to happen. Just like the weather man uses air pressures and barometric pressures and radars to determine what the weather is likely to be in the coming days. No different with TA. But both the weatherman and the Technical analyst have to wait for something to develop before you can make these predictions. So no you are not likely to call an exact top especially on a long time frame. But I know and have seen people call a top using candle stick, price action but not usually with indicators like MACD. I also disagree with the notion of "how little of the move you will catch". With good TA you can catch most of the move. With great TA you can catch MORE than the move by selling at extremes and buying at extremes. Look back at the weekly chart on CLNE and there was plenty to suggest a breakdown of the Nov price move. The downtrend in CLNE has been in place since 2012. Now did the OP find a trend reversal with good TA? I happen to think he may have but it may be a bit early to jump on board a long term trend and too late for short term daily trend. When weekly and daily charts match is when I have had the most success. Weekly chart is starting to look like daily chart. At the retracement is when OP will be proven right or wrong.

Braddock notion to not use stops is a contested one on this forum but I will say as you are a newbie ALWAYS USE A STOP. I always initiate trades with a stop in mind. Sometimes I put a stop loss order in place on shorter term trades and others I set a mental stop on longer term trades. But I Always have an out of where I know I am wrong. Until you develop that skill and to help you develop the skill of stop placement you should always set them. If they are always getting triggered and trade goes your way after its triggered you learned you placed them too close. But at least you didn't lose you account while learning this. Stops are essential early in ones trading career.

Braddock also says you should short CLNE because of the type of company it is. As a technician I could care less what the company does. I only care about what the charts say. Fundamental analysis is looking at that info. Some people use TA and fundamentals to trade but I don't. One could also make the fundamental argument that CLNE is a buy with all the green energy stuff Obama and Democrats support. The price of oil has risen lately and as that goes up CLNE will benefit. The chart clearly shows massive high volume buying in CLNE over the last several weeks. Seems like many people agree with the OP and not Braddock. Well I do too.

For what it's worth,...Just my 0.02
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Your own arguments are more important than wether we "agree" or "disagree". Anywhere there is great consensus, there's something larger missing from the picture, and fragility/apathy has already set in.

Of course, you can trade by calling tops and bottoms, but why make it harder for yourself by being wrong more often? Even if you traded the bottom breakout from Feb in chart above, you would have to wait a long time for the trade to materialize, possibly getting stopped out in meanwhile. So would be less worth it with regards to time and risk. This is different than saying it can't be done. You can do anything.

Getting more than the move? In my book, the entire move will be from the other side, so should be impossible to get more than that without leverage. Getting 110% of a move unnecessarily breaks some logic, but I'm sure feeds the ego nicely. So with that logic, what will getting 200% of "a move" mean, ie. what 100%-part is the "real move"? What "a move" is may be subjective after all, but never going beyond 100% price-differential is mathematically more sound.
 
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I understand your point and I am only trying to point out that people give TA a bad rap because they don't understand it and subsequently trade poorly off info derived from it. People tend to look at something in isolation. So I will try to explain a bit what I mean.

I would have never traded the breakout in Feb. as I am a trend follower and do not trade a reversion to the mean method. I tend to use the weekly chart as my trading direction and initiate trade off shorter time frames. The weekly chart still showed a downtrend in Feb. Here is a chart showing CLNE from 2012 till now. I know many don't like MACD but I love it. A basic understanding of MACD is to define an uptrend as above 0 and downtrend below 0. (A bit elementary but let's go with that for a minute) Another basic technique in determining a trend is using EMA crossovers, although I am not a big fan of them (because they are delayed signals) I do like when they confirm a move. Notice the weekly still shows EMA crossover to down side and It was still well below 0 on weekly MACD back in Feb. Only this month is EMA starting to show signs of crossing to the upside and MACD starting to cross above 0 on the weekly MACD. Also notice on the earlier chart I posted that CLNE had the same EMA cross and MACD cross to above 0 several days ago. When weekly AND daily match is when I have had most success. Back in Feb weekly showed weakness and was at lower extreme of BB so a retrace to the EMA on weekly was expected. That's why price moved up in Feb in my opinion and I would not analyze that as a breakout.

As far as getting more than the move I would say to look at GDX for example. A chart of that shows a breakout to new uptrend on weekly chart using the definition I have outlined above. This happened back in Feb. That breakout started at $16 and price today is $29.96 or a $13.96 difference. I have traded GDX this several times from $19.75 to $26.02, again from $24 to $30.43, & again from $27.73 to $31.02. That is a total gain of $15.99. That is more than the move in GDX simply by buying at extremes and selling at extremes. Now if you define the entire move as the absolute low of $12.40 to $29.96 = $17.56 then yes I have not yet caught more than the move but I have also caught 91% of the move by that definition. Still not too shabby. I only mention GDX as an example because many would say I am lying that I have actually traded this, but I have posted these GDX charts several times soon after close of these trades elsewhere on the forum so it would be hard for me to be making this all up right now. And all without margin.
 
eganon69 said:
View attachment 166133As far as getting more than the move I would say to look at GDX for example. A chart of that shows a breakout to new uptrend on weekly chart using the definition I have outlined above. This happened back in Feb. That breakout started at $16 and price today is $29.96 or a $13.96 difference. I have traded GDX this several times from $19.75 to $26.02, again from $24 to $30.43, & again from $27.73 to $31.02. That is a total gain of $15.99. That is more than the move in GDX simply by buying at extremes and selling at extremes. Now if you define the entire move as the absolute low of $12.40 to $29.96 = $17.56 then yes I have not yet caught more than the move but I have also caught 91% of the move by that definition. Still not too shabby. I only mention GDX as an example because many would say I am lying that I have actually traded this, but I have posted these GDX charts several times soon after close of these trades elsewhere on the forum so it would be hard for me to be making this all up right now. And all without margin.
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Yes, doing overlapping trades like that do indeed make more than the move. There are opportunity risks in doing so though, but if you are "certain" I guess such trades might make sense :cool:
 
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