Hi,
I was wondering how much everyone sets as stop loss. I generally put it around 10% down of the share price I buy it from. Adjust it if the share goes up considerably.
The Naked Trader recommended 20%.
What is your take on that?
The NT, has much tighter stops than 20%. See his blog.
It depends on the shares, 10% will take you out of many small to mid caps in the UK market. I stopped using them, got taken out of far too many, only to see them bounce back.
Stop loss depends on many different things, mainly your overall strategy. If you're high leverage, then a tighter stop loss would be advised.
Cant remember who said it, but their point was that you should only set tight (5%) stop losses as you bought because you thought the stock was going to do 'x'. If it doesn't do 'x' then technically you were wrong, so if you're wrong, then the stop-loss triggering saves you on losses and you get to reassess and learn.
However if the stock you chose was extremely volatile then sometimes 10% isn't enough.
You need to come up with your own strategy and test it and then try it out for real.
Personally I don't technically set stop losses, I set alerts. This isn't advised as it fits MY STRATEGY! The reason I do this as when my alert hits, I know I need to check the price action and chart to figure what's happening. These alerts are normally at price that is critical to breaking. I use these for both Stop-losses and TPs.
Alert hits, I check what's happening. My Stop-loss is set at an area that I dont want to still be in. this can be 20%, but sometimes I buy low and a stop loss hits when already in profit.
In summary you need to be happy that your risk is set to a maximum to what you are "happy" to lose. If your stop loss is always hitting, then maybe you're buying at the wrong place/price. Or you could even be trying to catch a falling knife, which is actually a failing stock. This is why you need your own strategy and to test it before using actual money.
I tend to use them more once ive made a decent profit. However the flip side to this is that the stop loss could actually be a bargain price. This is why every stock is different and strategy is important.
Ive recently got stopped out on Semler Scientific (NAQ:SMLR) and since that hit, it went onto do a nice gain. (You live and learn)
Contrary to that, I also got stopped out on Argentex (LON:AGFX) and that then dumped a further 40%.
Gotta be your own strategy, never regret a trade. Learn from it and move on, don't dwell on the what-ifs.
I bought some Argentex (LON:AGFX) last week, nearly sold as they were going down but today up 17%.
Yes can be a topping up point rather than selling. I tend to open a half position these days.
IG Design (LON:IGR) l got stopped out a few years ago, around -12%, shares then doubled within a few months. Not only nursing a loss also all the profits l would have made.
As a beginner, I started using the ATR indicator on charts. This the 'Average True Range'. Basically it tells you how many pips the stock has moved over the set timeframe you are currently viewing.
Whilst this may be of no use to you if you don't use charts or any technical analysis. It can be a useful starting block to understand just how much risk is potentially involved in a trade. so if 50 pips is average, a 2:1 trader would set a TP/SL at 100/50 pips either way.
I appreciate this may be of no use if you have no idea on charts or TA, and you may see as gobbledygook. But if you have some knowledge it may help you build a strategy.
No matter what, as I keep saying, you need a strict trading strategy, this would then lead you to know where you need to put your Stop losses and Take profit areas.
Someone may have no stop losses, but this may be of no use to you if you are involved in a highly volatile market.
I go with Ed's recommendation of setting the level to match the risk - you'll find it in A Practical Guide to Keeping Losses Small. I set an alert in Stocko, rather than an order with Barclays, so that I can see whether the price drop is limited to the stock or is a more general market/sector fall, or if the stock price was a sudden drop and it's back up again.
I agree with the posters who set alerts rather than stops. When a stock hits an alert I check to see if the reasons I bought it still hold good. If they do, I generally hold. If I believe the trend I bought has changed direction, then I usually sell. The risk of having an ‘absolute’ system is that you can be stopped out on a short term correction.
This week's drop has reminded me why setting stop losses can catch you out. Several positions made large drops and as a long term investor, I could have seen some significant and avoidable losses. It really depends on your strategy. If you're a trader, then it's very sensible, but if you're looking to hold medium to long term (5+ years) then stop losses do more harm than good, imo.
