The guy I learned the fundamentals from taught us to set at previous low. I find this to be way too conservative (as price swings during the day almost always trigger to sell). It's much worse w/volatile stocks that may see a pull back after a rally. In your experience, what has been the sweet spot (price wise) to set a stop loss or stop limit sell order? Previous week's high, previous month's high? Some percentage of acceptable loss? Thanks in advance.
At whatever level I've decided (on entering the trade) that if the price reaches it, my entry wasn't right and I no longer want to be in the trade because I no longer believe I have an edge. I find it good to relate that distance to the volatility. Sounds quite good to me, in principle. I often do exactly that (for a long trade, naturally). And that's a way of relating it to the volatility, of course. Another would be to use a multiple/factor of the ATR. Have you thought of looking at doing the same thing, but using the most recently formed swing-low on a slightly slower/higher-period chart, instead, then? It's one possibility ... Generally above/below the most recently-formed swing-high/low (depending on whether we're talking about long or short trades). But that doesn't matter. What matters is what the nearest thing is to a sweet spot for you. And ultimately you can only decide this by careful monitoring and comparing the collective outcomes over hundreds of trades. In other words, it's a huge job, to get it right, and it can vary between different instruments you trade, as well. If you want one quick, easy thing to try, I would try doing the same thing you're doing now, but on a slower chart. And perhaps think about whether you're sure that the SL-distance is the real problem, here.
assuming that you, like most others, try to enter the trend, the stop loss should be located at the point where your trend would be considered broken (usually the same point that confirm that the trend in opposite direction is still valid...which means you can reverse your loosing position) now that brings us to the question: how to define the trend? you have to find the answer to this one yourself
Hello Here4money, There is a few approaches to stop loss I think about. 1. When i think about stop loss, the first thing I think about is "what is a loss of money I am comfortable with losing compared to the amount of money I am comfortable winning" So for your trade, how much money are you comfortable with losing per trade? Whatever it is, make that your stop loss. 2. I think about "put the stop where should be, not where you want it to be". This contradicts number 1. The best stop for me is below some support or above some resistance where price was holding at. You want the stop out of reach where you think price may go. 3. If you compare number 1 and 2, then you have an idea where your stop should be. I try to mix 1 and 2 together as much as i can. For my system, i am testing what size stop prevents losses. You can also test what stop works best for your method. When you get a stop out and price then turns in your favor, measure how far price went against you and record it. Do this for all your trades.
I suppose I was hoping to avoid learning the hard way ($$) by understanding the experience from others who have done hundreds of trades. If my strategy is long term, and am resetting my stop loss on a daily basis, it seems like it's best to avoid volatile stocks. If I am going to be looking at volatile stocks, then it seems like it's best to take a fraction of the potential day's % increase rather than getting greedy and hoping for all of that day's gains. I lack discipline to be stuck on the screen and set orders at the right time and would rather do the long strategy but maybe I'm doing scalping tricks which are contradictory to a long strategy?
Only you can answer this question; Every market participant has their own crystal ball and convictions ...and everyone is essentially both right and wrong, Kind of think of Trading...as looking at Mountains far away, or thinking about the ocean's varying bottoms.
I hear you there ... but (a) be careful of taking advice about something numerical from essentially random people in a forum, and (b) to do that, you need at least to specify what you're trading and over what kind of time-frame, otherwise people will have no way of telling whether their own preferences are relevant or appropriate to you? (I tried to circumvent that problem - but maybe not successfully - in my reply above by talking in "principles" and generalities.) I'm now guessing from your reply that you're talking about trading individual stocks from daily charts, planning your entries for the following morning at the end of the day? Maybe so ... (and please excuse my mentioning, with no disrespect, that trading might not be the best hobby for someone who lacks discipline!) ... but if this is what you're doing, and your stop-losses are habitually/repeatedly being taken out, I'd suggest to you that it may not necessarily be your stop-loss placement (but possibly your stock-selection?) that's the underlying problem, here?
Setting stops is mostly arbitrary and an art. I prefer to use some chart parameter for all trade decisions... where to enter, take profits, stop. Most important is that a trader use stop discipline of some sort.
I agree. Setting stops depends on how a trader trades, testing, price action, and whatever plan the trader is using. My stop loss may not work for another person trading plan.