What kind of stop loss to use?

[trendisyourfriend]

Hi everyone, I'm new to trading stocks. I have a question about what stop loss to use when trading stocks.

I learned how to trade stocks by reading "How to Make Money In Stocks" by William O'Neil.

In this book, he recommends using a 7% stop loss and a 20% risk:reward ratio.

But let's say I want to take profits sooner than 20%? I would like to take profit at 5%.

What kind of stop loss should I use for a TP of 5%? Should I go for a 1:1 risk reward ratio and use a 5% stop loss? Or should I go for a 1:3 risk reward ratio and set the stop loss at 1.6% below my entry price?

Thanks

 

[murray t turtle]

Hi everyone, I'm new to trading stocks. I have a question about what stop loss to use when trading stocks.

I learned how to trade stocks by reading "How to Make Money In Stocks" by William O'Neil.
In this book, he recommends using a 7% stop loss and a 20% risk:reward ratio.
But let's say I want to take profits sooner than 20%? I would like to take profit at 5%.

What kind of stop loss should I use for a TP of 5%? Should I go for a 1:1 risk reward ratio and use a 5% stop loss? Or should I go for a 1:3 risk reward ratio and set the stop loss at 1.6% below my entry price?

Thanks

%5
GOOD question\ logic may suggest 2%.
BUT since his is a battle tested swing system 555 page system; 2% most likely will not work @ all, especially when so many are below 200 day moving average.
SO as a practical matter, have to be ultra pickey\ultra selective for anykind of %. page + single stock system system, not just 20 or 25%.
Better try to catch even the DIA weeks of 6%+ 7% ........................
Single stocks may do much more on upside + downside.
So even if you try 5%, remember plenty ETFs do more+ his system is designed for a bigger trend also. Good read

 

[taowave]

Rule #1 dont trust us,backtest it..

FWIW,not all stocks are created equally..Some are much more volatile than others....

Refer to rule #1

Hi everyone, I'm new to trading stocks. I have a question about what stop loss to use when trading stocks.

I learned how to trade stocks by reading "How to Make Money In Stocks" by William O'Neil.

In this book, he recommends using a 7% stop loss and a 20% risk:reward ratio.

But let's say I want to take profits sooner than 20%? I would like to take profit at 5%.

What kind of stop loss should I use for a TP of 5%? Should I go for a 1:1 risk reward ratio and use a 5% stop loss? Or should I go for a 1:3 risk reward ratio and set the stop loss at 1.6% below my entry price?

Thanks

 

[Peter8519]

I use 3 types of stops.
1. Technical - break support
2. Time period - after holding a position for a certain time and it didn't achieve target
3. Price - cut loss at certain percentage of cost
These are just plans and I make mistake all the time i.e. cut loss to early.

 

[Aisone]

I'm no expert in using stops for stocks, but you should probably account for high volatility stocks (ie less aggressive % stops) vs. low volatility stocks, and high priced stocks vs. low priced stocks (ie less aggressive % stops).

 

[Bad_Badness]

Trade what the market shows you, not what you want to happen.

All that stuff is sort of after the fact. Percent this, percent that. A % stop is best as a last ditch effort. Before that happens you should be managing the tail end of your trade, using a strategy that you have predefined. This is what you do when your TRADE.

You should have "exit" setups* just as you have entry setups. Create exit signals, then an actual exit order generation strategy.

To be clear these things are independently created-managed:
Entry signal
Actual entry point.
Exit signal
Actual exit point.
Stop Loss signal
Actual Stop Loss going live.

If you want a set and forget "strategy", that is investing, not trading.

* like wise you can have Stop "setups", BreakEven "setups" etc. All the situations where you can manage your risk while the trade is developing.

 

[taowave]

Not disagreeing (or agreeing), but if you spend time backtesting before committing capital, you have little choice but to test various percent stops,vol adjustments,scaling,pyramiding etc..

Set and forget has no bearing on trading vs investing..

Different folks,different strokes

Trade what the market shows you, not what you want to happen.

All that stuff is sort of after the fact. Percent this, percent that. A % stop is best as a last ditch effort. Before that happens you should be managing the tail end of your trade, using a strategy that you have predefined. This is what you do when your TRADE.

You should have "exit" setups* just as you have entry setups. Create exit signals, then an actual exit order generation strategy.

To be clear these things are independently created-managed:
Entry signal
Actual entry point.
Exit signal
Actual exit point.
Stop Loss signal
Actual Stop Loss going live.

If you want a set and forget "strategy", that is investing, not trading.

* like wise you can have Stop "setups", BreakEven "setups" etc. All the situations where you can manage your risk while the trade is developing.

 

[schizo]

But let's say I want to take profits sooner than 20%? I would like to take profit at 5%.

What kind of stop loss should I use for a TP of 5%? Should I go for a 1:1 risk reward ratio and use a 5% stop loss? Or should I go for a 1:3 risk reward ratio and set the stop loss at 1.6% below my entry price?

You shouldn't risk more than 2% of your portfolio. But you can't just place your stops willy-nilly either because price tend to move until its met by support/resistance levels.

 

[jnbadger]

You shouldn't risk more than 2% of your portfolio. But you can't just place your stops willy-nilly either because price tend to move until its met by support/resistance levels.

Agreed. I never use a percentage move in the stock to determine a stop. I use the chart and then come up with a number of shares in my head to keep my monetary risk consistent.

I've never understood why some traders use a percentage move to determine a stop.

Let's say I have a 1% stop. There is support at 100 and I'm long at 100.25. I'm not going to wait until the stock is at 99.22 to get out. I'm out just below 100. I'm actually probably reversing at that point.
Also, what if the support is at 99? I'd be getting out before the break of support.
It doesn't make sense.

BTW, to the OP. It's a good book, but WO is an investor, not a trader. There is an enormous difference.

 

[taowave]

Hard to backtest/simulate "gut feel",thats why hedgies/pros use percentages,vol stops...

Ill bite

Whats the definition of a trader vs investor??

Are you guys referring to time frame selected??

Yes,Buffet is an investor.....

Is Oneil buy and hold???

I would classify Canslim i.e Oneil,Ryan,Minervini,Morales as Traders not Investors...

Hard stop is in place,look for a price target,but will let winners ride as well..How is that not trading??