Stop Losses

Discussion in 'Strategy Development' started by tenfly, Jan 29, 2004.

  1. tenfly

    tenfly

    Hey guys, I have a question..

    I've been trading for a few months now - so yes - I'm a newb :)

    Anyways, in the past I've been forced to trade slow moving/boring stocks..I was limited to a low share default..I had everything set up..If my trade was losing more than a cent, I'd get out..$10 loss on 1000 shares was my max.

    However, my situation has currently changed. I'm allowed many more shares, and I've been trading faster moving stocks. Obviously I can't go for a .01 stop loss since I'd have to get out of every trade. To me, $10 is nothing now..

    I'm trying to disipline myself to get out at a specific level, but I just can't figure out when..Should I get out at .05, .10 etc. I'm trading stocks such as AMZN, YHOO, EGHT etc..Any thoughts/suggestions to help a guy out? :)

    thanks for your suggestions
    Tenfly
     
  2. PetaDollar

    PetaDollar Moderator

    It's harder than that.
    You have to figure out how to tell when the trade is not working and then get out. Your stop loss should allow your winners to pass and also function as an emergency exit. The amount of space you need to figure out if your trade is working, you have to figure out for yourself.
     
  3. tenfly

    tenfly

    I can accept that. I just find (mainly today), the trade would be going against me, but the markets would be dropping (I'm short), so I assume I'm safe..I'll average (which I almost feel as if it's a sin to do - I hate it)..And then the stock keeps going up, markets keep going down so I assume it's still a good trade - then I average..

    The one trade that concerned me, I was losing a pretty big amount. I was down $500 or so on about 9000 shares I think..In the end, the trade DID come back and I made $200 or so on the trade..But it worries me..WHAT IF it didn't? So I dunno..Guess I have some thinking to do :)
     
  4. Maybe use the previous swing high/low from 5 min chart. Really depends on the time-frames you trade.

    -Fast
     
  5. PetaDollar

    PetaDollar Moderator

    Just remember.. it's a game of many plays.. you can design your rules to keep you in only the best of trades that move your way real fast.. and miss out on some of the winners

    ..or you can leave you self open for big trouble, by hanging around when things aren't going your way..
     
  6. wdscott

    wdscott



    Tenfly,

    There are many kinds of stops.

    Price stops as you describe
    Time Stops
    stops based on a most recent support or resistance. swing high or swing low
    Pivot levels etc...

    When you initiate a trade it is imperative to define an initial risk level, whatever it may be. I like support and resistance levels.

    Peter also noted something extremely important above. Knowing when the trade is NOT working. A very important skill. If the trade is not doing what it is supposed to, just get out.

    Even if the trade turned out to be profitable after you scratched, the fact that it didn't do what it was supposed to, lowers the probability of a successful outcome.

    Scaling positions having no stop in mind will ultimately leave you carrying the largest position at the worst time. Then what.

    Always identify initial trade risks. You will be in the game much longer.


    Regards,
    Dave Scott