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 $100 stock. 3) On trailing stops, do you guys shrink them on the way up or keep them uniform? My rookie sense is the longer you've gone up the tighter you should make the stop. Sorry, I know these are very elementary questions, but hopefully conceptually interesting to hear your thoughts. Thanks!
If you are looking for hard and fast general rules applied to specific situations, volumes, price action, volatility, instruments, it does not work that way. That says nothing of the tactics you are using, and how they fit into it. There are a lot of ways to "slice a chicken". What you do depends upon your needs. Title should be "Stops Losses 1B" Introduction to using Stop losses in tactics. You mention things that you "can do". There are a lot of those to choose from. Once you become fluent in all of them and their mechanics (Native vs simulated, e.g.) you can start to add them to you tactics. Then you apply them to suit your needs. You try them out on paper to verify how they work. If you don't know what your trade tactics needs for risk management, then you need to back up further and develop a plan. Hope that helps.
Your stop level will be always related to the risk you are willing to take. You can make it as elaborated as you want. It can be just something like "I am not willing to lose more than 50$ so stop at that level" or you can keep refining that level with all sort of geek input variables, but after all it will be down to risk management techniques.
There are some good clear youtube videos on how to set them up and some reasons for doing one thing or another. This is one I thought was clear and simple:
my 2-cents worth, it depends on your entry method, and then Trend pullback entry? Reversal Entry? Your timeframe chart Your expected hold duration prob a couple million other considerations. One blood simple method, assuming you use an Entry Trigger, for a Trend pullback Entry, and truly *Do consistently stick to using No Less And No More than x% of your account value based on the distance between your entry and your stop, (and stats) and no more than 25% of account plowed into any single product*, taking a breath, then you should look at 20 trades and if you like, look at 30 more, then if you still like, then this might work. Wanna hear it, here it goes. Place your stop somewhere below the lower of the trigger bar or the bar before it and Don't forget the most important part, *. Opposite of this for Short trades. This can work for close up scalping work on a fast chart using support and resistance entries for example, especially setups like ye olde Hammer at Support and Resistance, Engulfing at SR, like that. Nothing complicated there. But then again if you are using some setup like a double bottom, the entry is many times miles away from your stop, like in this example for the generally accepted entry method of step into the trade when price rises above the apex of the swing between the two troughs. This mstr trade is not expected to yield a score this afternoon. This is not close up work. The guy who bought the engulfing at piv down there at trough 2, well if you're here after what he's here after, you'll be here after he's gone. But I digress. Some suggest to use trend line entries, again, which one? Do your stats on this or Any setups you expect to use and Not lose your everlovin' arse. Keep it simple. Have only as many rules as necessary and no more. Then actually follow those rules, lol. That's the last part of Patient, Focused, Disciplined. But enough of that crap. Trade on bro. Please leave some money for the rest of us. Break a Leg. https://elitetrader.com/et/threads/...t-right-here-baby.335635/page-18#post-5309309 https://elitetrader.com/et/threads/...t-right-here-baby.335635/page-10#post-5014575
1% Risk, Stops Here's a More Deluxe Version Position Sizing Tool Special with host Steve Rhodes cued . . . .
Simple concept of stops. 1. Using them is essential to survival. You need them to limit losses. If the market is going to take your money, it should be like being "nibbled to death by ducks". 2. Exactly where to place them is an art, not science. If you raise your stop as a "trailing stop", that's an art too. 3. At the time of your trade you should have already determined your stop. That is, "the amount you're willing to risk that your play is correct". Then leave it in place. No second guessing and "loosening up to give it more room"... that's poor discipline. That said, if you sense things have changed for your play, it's OK to "stop out early, before your original stop is hit". That's a guess, too, and sometimes it will be wrong... but no "risking more" than the original stop. Once stopped out, forget about that one and look for the next play.
Thanks Everybody! These are all very helpful in their different ways, appreciate the detail too. I'm just watching today, trying to calculate on the fly, and see how often I'd get stopped out. Seems like a shade above 1% might be a sweet spot, 1.25% or something, and then shrink that once you get some gain on scalps to .75%. The nibbled to death by ducks analogies killed me because I've done exactly the opposite year, hopeful holds until I panic sold a couple times. New at this and stupid, underestimated the emotions. Now with hindsight, the epiphany I had yesterday was what if I just broke those few big losses into a bunch of smaller stops, how many playswould that have allowed me to GET RIGHT too??? Ugh.