A stop loss will not protect you from gap downs. Still, you must use it. A stock that drops from $20 to $12 must be sold, no matter how painful the loss. That stock could continue falling all the way to $1 or even zero. Stop losses are there to save your capital, not totally, prevent you from losing monies. When you have a profit then, it protects part of your profits.
Using Stops
- Thread starter KGTrader4
- Start date
A stop loss will not protect you from gap downs. Still, you must use it. A stock that drops from $20 to $12 must be sold, no matter how painful the loss. That stock could continue falling all the way to $1 or even zero. Stop losses are there to save your capital, not totally, prevent you from losing monies. When you have a profit then, it protects part of your profits.
The time to use stop limit orders is when you are exiting and have a huge profit. Say bid is $18 and ask is $20 and you bought the stock at $10. It is trading at $20 now. So, you place a stop limit with a stop price of $19 and a limit price of $18. Stock drops to $19. Your order now becomes a limit order @ $18 limit. Your stock gets sold at a minimum of $18. If the stock is at $19.10, your stock still gets sold.
If you trade something liquid - I don't imagine anyone cares about your stop, so I wouldn't worry too much about that.
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I WOULD be SLOW to sell huge gap down /LOL/ because its most likely goin 'to bounce UP+ UP_
BUT i seldom do single stocks anymore \because single stocks as\ FB can easy go to zero/goose egg.
Actually i was in FNGU when it went peak to valley almost 50%, SEPT week to weak week. THAT was much more HUGE Draw Down than i ever figured, even though i exspect a weak SEPT month. Sure it turned profitable again, but i made sure to trade FNGU smaller ........
MOST likely out end of day\ single stocks\could go much lower\ by end of day
.InVestors Business Daily founder + fund manager did super well on single stocks with 7 or 8% stop loss\many of them semi liquid / and not vey liquid smallcaps..................................
Small losses are easy to recoup and cover with larger gains. Gap downs happen less often than people think. Most times, the stop loss is hit and the stock either tanks completely, and starts it move lower. Or in the event it bounces back up, there is no rule that you cannot enter and place another trade. The 2nd trade could be a better trade with a lower entry price and tighter stop loss. And if a big winner, covers that small loss you got from being stopped out.
How is your discipline? If you use a mental stop, are you going to take it? Keep in mind that a stop loss doesn't actually stop a loss. It keeps the loss to a manageable size.
There is not a lot you can do about gaps. My process when a positions opens well below my stop is to play the opening range. It it starts to recover I'll continue to hold, then trail a stop, and if it takes out the low of the opening range I'm out with a bigger loss than I expected.
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MOST likely true\ especially\ including but not limited to mental stops\
maybe about 93.777% of the time, for entered stops.
So exceptions to the rule can be / say/concrete example/ people put a whole range of buy limit orders, SOXL,SSO,spyg in late FRI, SAT + God knows when. And some agressive use buy market orders early morning/LOL.
Good chance those buy stops get hit; SOXL plenty liquid but wild child also
Actually soxl turned wilder than i thought, so sold market order for smaller profit daytrade\spxl loss slipped abit more than i planned out \SPXL.Still in starting position spyg 30 minutes 'til close.................................................Good points LAisseZ
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At least to know what to work on.
