The art of the "stop loss"

Discussion in 'Trading' started by Itzikuku, Apr 20, 2007.

  1. Itzikuku


    I don't know if you it happen the same like me but the hardest task I found in trading activity is how to set the stop loss properly. I think that only about this topic is possible to write an entire book.
    Many times happened that I applied a stop loss, only to see after, that the price come back to the same place where I left it.
    Fortunately my desk is enough strong for tolerating my "blames"...
  2. It is very simple, when you go long it is because you assume the momentum is upward. At what decline-level would you say your assumption is wrong? Put the stop there.

    The fact that prices go back after you stop was hit doesn't mean that your stoploss was wrong. You will be right and wrong about 50% of the time. There is no way you can predict the future.

  3. If this is a chronic problem or happens enough times that it has a big impact on your profit curve...

    You need to design a re-entry signal to get yourself back in the trade.

    However, if this happens very little but enough to bug you...

    Don't worry about it (trading can't be perfect) and move on to the next trade.

  4. Don't take stops'll be fine ..really(just jesting). I agree its tough to place stop losses especially after you've seen the market seemingly turn on a dime after yours has been triggered. I know the experience well.
    I suppose if you have many trades on at one time then you'd have to place them. I use manual stops based on my perception of market conditions. I normally have fewer than 5 trades at one time so that would make it easier than someone who has two or three dozen. Technicals help and that comes by experience..years of it.:) :mad: :( :confused: :D
  5. I think one of the bigger mental/emotional problems with assigning your stop loss is seeing the negative numbers in your account.

    Theres a very short term stop loss, a medium term stop loss and a long term stop loss for every trade. You need to decide ahead of time what you;re looking at...

    Many new traders assign their stop loss to the closest point of support because thats where they WANT it to hold.. but except in extremely bullish momentum cases thats rarely where it holds.

    I used to get stopped out all the time only to find an hour later I would have made good money if I held on..but I hated seeing the 'potential' losses building in my account.

    I had to get over that and accept that nobody calls the exact reversal or bottom consistently.

    Yesterday was a prime example...I thought I caught VLO at support of 64.60 rallies right after I bought it and then failed to break out above the resistance at 64.89 and headed back to my entry point.

    The 'old' me would have had a stop there because I felt it was strong support.

    The 'new' me believed in the stocks bullishness and I had my support at the days low of 64.28...VLO broke through the support at 64.60 and held at 64.52...why 64.52 ? I dont have a clue..theres no support there. MM faking newbies out I guess.

    Anyway VLO , as we knw, is at 65.93 right now...
  6. jts


    If you have your stop loss positioned correctly you should find this 'event' evens out ie the number of times you see price come back is about the same number as those that keep on going in the same direction, over a good number of trades. If otherwise, backtest and reposition your stops.
  7. Allaces


    There will always be a short term support or resistance number that can be used to set a sane stop.. if you don't know this number by looking at the charts it's time to give it away
  8. Qwerty


    The chart with commentary may provide some insight.
  9. "It is very simple, when you go long it is because you assume the momentum is upward. "

    only in your very narrow understanding of trading, apparently.

    not all trades (or traders) are momo players, and there are plenty of reasons to go long (or short) besides momentum

    simply put, it aint that simple...
  10. Itzikuku


    Thank you to everybody .

    Reading your posts I realize that there are so many methods to placing a stop loss, as traders in the market. Each one has his own criteria, such I am seeing.

    Only I can say, is that most of the times I took a "stop loss", the behavior of the market demonstrated me that I was wrong and the stop loss was unnecessary. But only one time can happen that the stop loss is truly necessary. Only one time in , ie, one year...

    I say this, because I am very careful when I place an order , so much if the market goes upward as downward.

    I would like to find the way to recognize when the "stop loss" is truly necessary.

    Many stopp loss bad applied, makes a disaster in any account....
    #10     Apr 21, 2007