Stop Losses 101

[DrCornwallis]

Another rookie question from yours truly, a three-parter after I just took the 2 dumbest losses in my very short trading career this week alone, I finally realize that I need a stop loss system that I just make ironclad and execute automatically. So for day trading, I'm wondering the following:

1) is there a golden percentage people tend to use to avoid getting stopped out on minor pull backs? My hunch is to go with 1% for awhile and see how that goes, but if there's a smarter % percentage, I'm open to suggestion.

2) Should the stop loss vary by stock price? With a 1% rule, a $20 stock could stop you out way more frequently than say a $50 or $100 stock.

3) On trailing stops, do you guys shrink them on the way up or keep them uniform? My rookie sense is the longer you've gone up the tighter you should make the stop.

Sorry, I know these are very elementary questions, but hopefully conceptually interesting to hear your thoughts. Thanks!

Ur stop should go behind some 'key level'. Usually a previous price pivot and/or market structure, which you are anticipating price to retrace into, and adjust your position size to match the amount u are willing to lose on each trade.

The fact is, that most of the time, all your stop loss does is stings you, and then reverses right back in your trade direction, or at least to break even. I had one last week in the EURUSD, where price didn't even run through my Stop Loss, but my cfd brokerage spreads widened just enough to take me out, before turning on a sixpence and ramping right back up the chart, rallying far higher than my wildest upside target might have been.,,and similar things happen in the DOW and the S&P, in both directions.

The problem is, the 1 times in 10, when your stop loss is triggered, and price keeps going and going and going. Just takes one of those to wipe out your account. So you unfortunately have to trade with a Stop Loss. Do try and deploy some kind of logic to wear you place it, but don't take it too seriously. It is just a way of limiting risk and Stop Losses are there to be run out.

 

[easymon1]

adjust your position size

Dr C,
If a Stop Gap = Difference between Entry Price and Stop Price

...and if a trader's stop gap, resulting from a Sound Stop Placement is small enough that the position size is not limited by the stop, but IS limited by the Total Account Value, then what percent of a trader's account would you recommend be plowed into any single position?

All with ideas, chime in on this.

-
eg math might even be near correct, but no guarantees, lol.
Entry on short is around $922
Stop Loss $927
($922 Entry - $927Stop Loss ) = $5 Stop Gap

AcctSize $100,000
Trade Risk % of 1.23%
= $1,231

If Position Size were dictated by Stop Gap, in this case the math says to enter
246 Shares Costing $922 each is more than 200% of 100K Account Value.
246 x $922 = $226,812.

Wrong Answer, lol.

So at this point the trader will want to have a benchmark percent of account value to use for a single position, above which not to tread, no?

So for a single Stock Daytrade, under direct observation, what percent of a trader's account would you recommend be plowed into any single position?

My two cents worth is to size a position at 2% of account value calculated by Stop Gap and no more than 25% acct val if the stop gap is that small, per futures position, that's all I trade and I watch these daytrades like a hawk and whenever possible use bracket trades to exit at target or stop.

But what % works for Stocks, Options, Index etfs? (that already have an array of stocks from 30 on up), etc

 

[easymon1]

Bet 'em up, gents.

1) Stocks priced $x or less have the highest average rise with the lowest failure rate of any range studied.
2) Stocks $x or below have above average gains and lower failure rates than the higher priced stocks.
https://elitetrader.com/et/threads/...st-right-here-baby.335635/page-8#post-4990185

 

[Dollardogs]

Stop Loss = 927
Entry Short = 922



Hypothetically,
Assuming an Account Value of $100,000 for simplicity,
For this Trade How many shares would you Enter?

50, I like to use half the acct, hold half back in case I see a move I like even better. What do you recommend?

 

[Dollardogs]

Ur stop should go behind some 'key level'. Usually a previous price pivot and/or market structure, which you are anticipating price to retrace into, and adjust your position size to match the amount u are willing to lose on each trade.

The fact is, that most of the time, all your stop loss does is stings you, and then reverses right back in your trade direction, or at least to break even. I had one last week in the EURUSD, where price didn't even run through my Stop Loss, but my cfd brokerage spreads widened just enough to take me out, before turning on a sixpence and ramping right back up the chart, rallying far higher than my wildest upside target might have been.,,and similar things happen in the DOW and the S&P, in both directions.

The problem is, the 1 times in 10, when your stop loss is triggered, and price keeps going and going and going. Just takes one of those to wipe out your account. So you unfortunately have to trade with a Stop Loss. Do try and deploy some kind of logic to wear you place it, but don't take it too seriously. It is just a way of limiting risk and Stop Losses are there to be run out.

Thanks Doc! I've gotten burned by a couple stupid stop loss trips too already, one with MRNA last year still pisses me off. I'll start working towards a less rigid system where I identify the key level but also set it at an amount I can live with.

 

[easymon1]

50, I like to use half the acct,

If you like it, i like it...

My humble system doesn't work as well on 5 min charts. Here's a couple entries and exits on the 1 min charts for 2/18 on MSTR. Green arrow is open and red arrow is close with a dotted line for stop loss. Don't understand why yet but when I use the 5 min chart, I miss too much of the move waiting for a trigger candle, and the risk/reward ratio shrinks enough to scare me off.

. View attachment 252693 View attachment 252694 View attachment 252695 View attachment 252693View attachment 252694

Looking Good.

Notice the Sensible Stop Gap DOLLAR AMOUNT at risk vs Dollar Reward.
With that Well Placed Stop of yours, your risk was entirely reasonable. Your 50% was safe.
If you calculate your Risk based on Stop Gap Dollar Amount / Acct Value Dollar Amount, that should give you a good laugh. That's a tight-ass Stop.
Keep some stats on your setup. It may not be half bad. It will get better too.

There's a thread or two here at ET dealing with what people keep in their stats. A search will turn that up. Simple is beautiful imho. Don't go overboard on stats to begin with. If you need more data, you'll know it. If it's too burdensome, it don't get done.

(By the way, had you looked at Friday MSTR, you might find your system would have some pretty durn good results.)

keep this in mind
https://elitetrader.com/et/threads/...st-right-here-baby.335635/page-8#post-4990185

 

[Dollardogs]

Here's one from today I regret not playing but there's a "tight ass stop" conundrum in it, as you put it. Arrow for entry point with my system, and I put the stop where it seems I should along that support line from the previous 4 candles, I can ride this one all the way up, inching the trailing stop along the way. Problem: the amount is huge! With an entry right around 34 and a stop at 32, that's closer to a 5% stop loss than my tight ass preferred one, yet my tight ass one stops out very next candle missing the whole ride unless I reenter. 5% stop on 50% of the account is 2.5% of my account, is that too large a risk for a single play or actually wise to avoid stopping out all the time? Please advise!?

 

[DrCornwallis]

Here's one from today I regret not playing but there's a "tight ass stop" conundrum in it, as you put it. Arrow for entry point with my system, and I put the stop where it seems I should along that support line from the previous 4 candles, I can ride this one all the way up, inching the trailing stop along the way. Problem: the amount is huge! With an entry right around 34 and a stop at 32, that's closer to a 5% stop loss than my tight ass preferred one, yet my tight ass one stops out very next candle missing the whole ride unless I reenter. 5% stop on 50% of the account is 2.5% of my account, is that too large a risk for a single play or actually wise to avoid stopping out all the time? Please advise!?

View attachment 252893

For me, just looking at that, the logical stop has to go a few ticks beneath the 'railroad' candles at 30. That is where the bottom was put in, That is where the high volume was put in, and where the aggressive buying was done, which probably means some strong hands were interested buyers at that level, so just beneath that level is where the logical stop must be. If you want to place your stop beneath the strong green candle, playing an 'inside bar' thesis, then nothing wrong with that either, and you get a much greater rr. However, all you are doing there is playing the 'probabilities' of the trend continuing beyond that point. You can't have any realistic expectation of strong hands defending that level.....If anything, the strong hands there would be interested in entering on the test of that gap, which is beneath the probability stop.

Couldn't tell from that screen whether I would have taken that or not, as I am not a fan of crossing MAs as a trade setup.....great when they work perhaps.

 

[easymon1]

I put the stop where it seems I should along that support line from the previous 4 candles, I can ride this one all the way up

You'll Want One Of These
This one's whipped up in a spreadsheet:

Here's one online:
Trading Calculator for Fixed Percent Risk Position Sizing
http://positioncalculator.bedobi.com/#/#feedback

Here's a Deluxe Version Position Sizing Tool
cued . . . .

Heres a post on the topic:
This "BareBones Position Sizing App" for Futures Would Be Most Welcome Online.
https://elitetrader.com/et/threads/...-futures-would-be-most-welcome-online.355764/

Here's a Futures Risk Calculator
https://evilspeculator.com/futuresRcalc/

 

[Dollardogs]

For me, just looking at that, the logical stop has to go a few ticks beneath the 'railroad' candles at 30. That is where the bottom was put in, That is where the high volume was put in, and where the aggressive buying was done, which probably means some strong hands were interested buyers at that level, so just beneath that level is where the logical stop must be. If you want to place your stop beneath the strong green candle, playing an 'inside bar' thesis, then nothing wrong with that either, and you get a much greater rr. However, all you are doing there is playing the 'probabilities' of the trend continuing beyond that point. You can't have any realistic expectation of strong hands defending that level.....If anything, the strong hands there would be interested in entering on the test of that gap, which is beneath the probability stop.

Couldn't tell from that screen whether I would have taken that or not, as I am not a fan of crossing MAs as a trade setup.....great when they work perhaps.

I hadn't heard that distinction before: logical vs probability stop. Makes sense. So say I set the stop that much further down, then it's a matter of sizing the trade so I can live with the amount not panning out? Reason I ask is I'm wondering what a good beginner's rule of thumb is for max % of total account risked on any one trade?