Learning about Stops

Mark, How about opening a topic in the learning area about stops and another about 'specialists and market makers'. There's a lot of misinformation out there. Most successful traders (at least on this board) use stops, but my experience has been that stops get run if I leave them open too long (even way out of the money), so I now only use mental stops (stocks only). Maybe the FF contributors would be willing to share insight. Thanks, Dale

I'd love to hear more discussion about stops. Sometimes it seems no matter what strategy I use for stops its wrong, or that "they" are watching me. On my CANSLIM breakouts I am putting in a hard stop of 7-8% on entry, and then mostly using soft stops (mental stops) after that. Too many times I've been taken out on downward spike when I use a trailing stop. I've experitment with a "chandelier stop" which is basically the highest high - (coefficient * average true range). Its helped me out a few times, but hurt me too. With swing trades I always use hard stops, and it hans't been a problem. For daytrades I'm still figuring it out. What about the rest of you?

I like to put stops just below key moving averages like the 20 or 50. But on new positions, I mostly keep the stop mental for awhile or make it very loose. Once I'm in the green by a decent margin, I like to put a hard stop at breakeven. And once I get a big enough profit that I feel a need to protect it (which for me is usually in the $500 to $1000 range), I will move the stop up on at least half the position. But I never use automatic trailing stops (except occasionally for daytrades when I have to step away from the market). I prefer to trail manually based on what looks like a reasonable technical level. If I get a very fast move in my favor, I will set the stop at about 50% retracement of the move. If I get a very fast move against me and I don't have a stop in place, I will often try to hold a bit longer and exit on dead-cat bounce (though that's dangerous, of course).

I'll be moving this over to IU when we get some more info on it... Good idea. Mark

If I get a very fast move in my favor, I will set the stop at about 50% retracement of the move. If I get a very fast move against me and I don't have a stop in place, I will often try to hold a bit longer and exit on dead-cat bounce (though that's dangerous, of course).

Thanks for starting this thread. I, for one, really appreciate it. If possible, could it be expanded to include:

How long do you hold on to a losing trade going against you? Pre-set dollar amount, percentage, combination?

Do you let a winning trade just run, or do you take the profit off the table after a certain amount, percentage, etc, and let the rest run.

I'm just interested in how you successful traders usually do it.

Thanks.

I feel stops are a money managment issue, and are not necessarily market price movement related. I see two parts to trading, operational and executive. The executive part controls all major account decisions, like making sure you are alive to trade, again and again, and thus sets the risk for all trades be it percent of balance or set numbers of dollars to risk on any one trade. The operational part determines the size of the initial position relative to the traders objective on that individual effort and the state of valatility of the particular maket in relation to how far away previous daily or weekly lows or highs are, depending on if one is going short or long respectively. And of course the operational part of the traders brain has to decide how strong, how likely, the trade really is. An example would be having only a long side bias in this present equity market. Top picking is clearly a low percentage effort and so any protective stop has to be tighter because of the real world risk of gap up and explosive sentiment being against one. One could write an entire book on stops. I know others who if long and the market is against them, will only get out of their long if they feel they must then be short. Others rightly fear whipsaw and set large stops on smaller positions. I think in the end the only answer is the psychological makeup and risk tolerance of the individual combined with their trading experience level. norton

"Stops" is one of my favorite topics, mostly because it is so important. 1. All stops are arbitrary. Seems like no matter how you determine where to stop or where you set them, you can always look back and find many where you'd have been better off if they'd been somewhat different. 2. The Stop is where you accept that your position is probably wrong. Surprisingly, it's not especially important where it's placed on any one trade. But it's critically important that you ALWAYS, ALWAYS use them. Hard stop or mental, just do it. 3. I try to think of the entry and stop as part of the same trade. That is, I want to get the position on as close as reasonable to where the stop would tell me "you're probably wrong" without risking too much. The best way IMO, is through reading support and resistance on the charts. Let's say you're playing a long on the Dow index. You can see something on the chart that says to you, "should bounce there, if tested".... trendline, congestive low, rising moving average, whatever. You can either wait until it gets close and buy so you don't have to risk too much (however, it may not get there and you'll miss the opportunity), or you can buy now and risk a small amount of buffer below the break of your support. If you're trading an index, you can use .5%, 1%, 2% buffer below support to cover "overshoots".... beyond that, you must conclude that support is NOT holding and your play is simply wrong. Bottom Line... a. Stops on longs go just below support buffer ... stops on shorts go just above resistance buffer. b. If you don't have good stop discipline, it's only a matter of time until the market wipes you out. Over the years, the market has "taken a few runs at me"... to get back all my gains and then some. The primary reason I still have some money is because diligently exercising stops has been the BEST part of my trading since day one.

I remember someone posting that they used volatility stops but I've never seen any real details. Can someone post either some info on these or a link to info? Also, anyone have thoughts on when to get back into a position once you've been stopped out? If it comes back above your stop point do you re-enter? SSB

I do not use stops period! James Quillian

if you don't use stops you don't trade futures, and/or what was put on as a "trade" becomes an "investment grade vehicle" suitable for long term holding norton, not being sarcastic, just pointing out what personal experience has taught