Stop Loss Talk

[littlerocketman]

Hello People -

Curious to hear approaches to stop setting. One surmises most have specific rules for different scenarios. For instance, I use long options exclusively, but since my time frames vary (usually intraday) and gauging accurate option prices at yet-unattained underlying prices can be hazy, I normally set stops according to a not-yet-codified formula using underlying target prices and relative-to-trade-capital loss-tolerance. However, I sometimes find it challenging to find levels appropriate to my window. Usually it's "if red, and X underlying moves beyond Y, sell at mid-spread." Or, in the case of profits "place limit order at target, stop out at x% profit-drawdown." This system works, but would like to hear how people go about placing stops - either at loss or profit. Percentage based on initial outlay or relative to account size? Does it shift depending on targets and anticipated time in trades? Do you readjust stops if conditions change? I psych myself out sometimes, leaving money on the table due to conservatism, or leave trades on too long by setting stops too deep, and, in some cases, readjust timeframes to suit conditions. But I want to optimize, standardize, yet remain adaptable and nimble. Thanks for kind contributions.

 

[maximumpossiblesuffering]

Hello People -

Curious to hear approaches to stop setting. One surmises most have specific rules for different scenarios. For instance, I use long options exclusively, but since my time frames vary (usually intraday) and gauging accurate option prices at yet-unattained underlying prices can be hazy, I normally set stops according to a not-yet-codified formula using underlying target prices and relative-to-trade-capital loss-tolerance. However, I sometimes find it challenging to find levels appropriate to my window. Usually it's "if red, and X underlying moves beyond Y, sell at mid-spread." Or, in the case of profits "place limit order at target, stop out at x% profit-drawdown." This system works, but would like to hear how people go about placing stops - either at loss or profit. Percentage based on initial outlay or relative to account size? Does it shift depending on targets and anticipated time in trades? Do you readjust stops if conditions change? I psych myself out sometimes, leaving money on the table due to conservatism, or leave trades on too long by setting stops too deep, and, in some cases, readjust timeframes to suit conditions. But I want to optimize, standardize, yet remain adaptable and nimble. Thanks for kind contributions.

On my long option trades, my stop loss is 50% of my premium paid. On short option trades, I will risk 100% of premium received. On my non option trades, I set my stop at defined S/R or likely S/R. I almost always either keep my stop near or exit out part or all of my position if I don’t feel I can keep my stop near. Thus, I usually am exiting part or all of my position on either a wide range bar, a multiple of risk, a percentage of average daily trading range, or before lunchtime or the close on a day trade.

 

[tomorton]

On my long-term trend-following trades, I have a set stop-loss which is put in place as soon as the position is opened. But I also continue to TA the position as time goes by, so that if the trend weakens significantly, I'll get out manually anyway.

The basic rule for the fixed stop is that e.g. in an uptrend, it is below the most recent support zone: but it must be a price level which, if broken, says the uptrend is more probably over than pausing. The stop can be moved up as price rises further along the uptrend, if a new support level is formed without the trend seriously weakening.

But I realised I recently mixed up my entries and tops, to my cost. I was using a swing trading pattern to open trades in strong trends but also using a swing trading tactic to identify stop-loss levels. So my stops were far too tight. I should have been using the trend-following approach as above. Annoyed I slipped back into a bad old habit. Grrrrrr.

 

[Saltynuts]

What percentage below buy-in prices are stops most generally set? I mean the most common percent or percentages. Thanks!

 

[tomorton]

What percentage below buy-in prices are stops most generally set? I mean the most common percent or percentages. Thanks!

I don't look at this, but I am a long-term trader. The initial stop has to be where the TA says it will be: i.e. at the cross-over point beyond which further price movement in my direction is now less likely than further movement in the opposite direction. Any other position is effectively randomising your returns.