to answer the OP's questions: when you most need them, stops may not work. they're real good, but you may get screwed. i always use stops. they're mental - and based on either price, time, or volatility actions - but i always use them. the successful traders i know, both equities ppl and derivatives (swaps, swaptions, exotics, etc.). and it's not always based on the "25c away from my entry point" or something simple like that. side things: -> at one point, i believe it was the nyse, tried to ban stops. i don't know if they were temporarily successful. -> the best move my trading ever took was when i took lower risk entries where the reward was significantly greater than my risk (ie. stop). i primarily short (almost exclusively daytrade) lesser known equities. on that day in february, i was holding zero short positions later in the afternoon. when the DIA shot down and i couldn't find any reason, i went long. got stopped out of half the position (down 10c), but when it went back through my buy, i put it back on (and a little more). exited by end of day, and went on my way. lucky? sure. but being prepared, i was able to take advantage of it.
Less than perfect, oh no!!!Only kidding Grob.I agree that the standard game is turning around at the top of upswings and then turning around at the bottom of downswings. Taking the days reward as I call it.
hi folks, old trader mentioned that buying an out of the money put is an expensive way of having protection against a big fall. now if I have a portfolio of stocks, what if I always have a sell order on that if say the DOW drops 100/150 points I will sell something (futures, options whatever) with a stop loss in place. My sell order will be big enough to cover any losses on the stocks. Ofcourse I will have to adjust the sell price on an on-going basis. In this way, I dont have to buy a put and it doesn`t cost me any money. however if the market really drops, I buy the protection on the day. Am I really so brainy or am I missing something?
I think most are missing the point of the OP question: MARKET CRASH!!! Not just day to day moves.... Will you get out if DOW drops 1500 points during the day???? I believe the answer is YES...at some price...BUT only on EQUITIES...I do not know about options etc etc.... There are several exchanges and ECNs....the rules on "stop loss" are for NYSE only.... And, don't even talk about the many brokerage companies and their platforms....direct access screens have made a big move but what happens is unknown....the broker server could be clogged and your order never gets to exchange... I think, LOL.... SteveD
SteveD, During regular market hours, what type of stop order(s) can have a fill in equities provided there was enough liquidity with people willing to take that side of the order e.g., i) Simulated stop order, ii) The stop order that have already been sent to the market? The instance of IB's failure of executing stop-order seem to be a broker/data technical issue. What type of stop orders are less prone to be unexecuted because of a "bad" print?
One bulletproof way to strictly limit losses despite enormous unforseen gaps, is to be an option buyer. You can't lose more than the premium, even if the price gaps eleven standard deviations in five milliseconds. Another equally protected strategy is to trade vertical spreads (buy 6 calls, sell 6 calls at higher strike price). Again your maximum loss is strictly limited.
Stop loss orders are NOT sent to market...they are held on your broker's servers till that price is reached and THEN it is sent to exchange for execution as a Market Order which is filled instantly....at what ever "market price" is at the time.... You may have 1000 shares and get filled at .50 intervals for each 100 shares.....but you are out... Remember, other traders/investors may have limit BUY order at the 200D MA.....and the specialist stands ready to buy also... Active traders really shouldn't be too worried.....you are watching regularly... SteveD