Help using my Stop Losses

[737ngx]

Hello All,

given the title let me give some background...
Friday, however this happens to me most of the times, I was following a stock that gapped up pre market,
it closed the previous day at about $3,00 and gapped up to $5,50, it had good volume on the day,
during pre-market it reached about 6,20 and at market open it was at 5,90 and still above VWAP
my plan was to wait and see if it would break the pre market high and if so buy shares...
It never did, in fact it started to loose, went below VWAP and when it broke an important support @ about $4,80
I decided to locate the stocks and go short, it really looked like that the price would continue all the way down to
previous day close and it actually did... but here is my issues with the SL
Obviously the price does not move in a straight line, there are always pull backs and they keep hitting my SL

The way I trade is as follows: Once my order is filled, first thing I do is create a stop loss order, at about 0,25c to 0,30c,
as the price moves my way, I move the SL keeping it always at the same distance, but most of the pull backs are bigger
than 0,30c so I keep getting stopped out too soon and never surf the wave all the way to the end...

So I guess what I am asking is how do other traders use their SL.. should I have them wider but how wide?
Some one mentioned they use 2% of their account and they use this rule every time.. sounds a bit strange,
I refuse to listen to those that say do not use a SL... I am new still at trading and I do not trust myself without a SL

So any advice is more than welcome...

Thanks
Nic

 

[tomorton]

Consult the ATR for each instrument you're trading and set your stop-loss at a suitable multiple of ATR from entry. A 14-period ATR is the default value on most charts, and you can then calculate, say 1 x ATR14 or 1.5 x ATR14 or 2.0 x ATR14 etc. to give you the entry to stop-loss distance. This always gives you a standard level of tolerance of volatility. Then you just need to make sure your position size is adjusted so that if your stop is hit, the loss will be the same % of your account capital.

 

[737ngx]

Thanks this is interesting, I used ATR when I swing traded in forex on the daily chart.
But on stocks, how do I read it? given I trade on the 1min chart how should I read the ATR?

 

[tomorton]

OK, you open ATR and see the current value. If your default period is 14 as is usual, this figure represents the average range (high-low) of the last 14 bars, the last 14 minutes in your case. Double-check that ATR is showing according to the time-frame you have selected, 1-miute. You might use for example 2 x the ATR value as the distance from your entry to your stop-loss price: this would mean price would have to move twice as far as the average range of all the last 14 bars in order to hit your stop.

ATR is displayed as an off-chart indicator window, so the course of the ATR shows you whether it is currently high or low, and increasing or decreasing, useful for some strategies.

 

[HotRock]

Is anyone aware of an ATR indicator in MT4 that will show the value on the chart rather than in a separate window below?

 

[crud-cutter]

Thanks this is interesting, I used ATR when I swing traded in forex on the daily chart.
But on stocks, how do I read it? given I trade on the 1min chart how should I read the ATR?

Alternatively you could just use a Bollinger Band and set the number of Standard Deviations to whatever best suits your trading style. Just experiment until your find one you are happy with.

 

[NVP]

make your stop losses bigger .....should tattoo that onto the head of all new traders

all my S/L and exit systems are geared off ATR based calculations ......nothing comes close

 

[new_trader]

Whenever I read someone advising widening of stops I think of the two most influential posts I have ever read on the subject.

tl;dr: Use tight STOPS

But I do explain a lot, but it does not land, that is the problem.

You take this thread for example,OK ?

I make a valid comment and then it starts to attract abuse, and the mods have to step in with a fat finger. Why ? Because i give as good as I get, if not better, I always respond fiercely if I am attacked.

Let's talk about this thread.

What exactly does Brett Steenbarger do his best to solve ?

( I have had PM traffic with him and he seems a very decent chap, btw.)

The problems that beset him, and any other house psychologist for that matter is that he has to find a way to bring people to proficiency, to stop them doing silly things, to stop them taking flyers, to stop them reacting incorrectly to market prompts, to help them retain control of themselves, to help them prevent themselves from becoming serial traders out of control, to stop them overtrading, to help them not be emotional, reactive, impatient, and all these things.

What could be at the root core of all these problems ?

Is it the fault of the house psychologist ? No, he is himself, and trying to do his best.

Is it that the people he is trying to help are maniacs ? No they are ordinary human beings in an environment that requires a different attitude, conduct and responses to those they are accustomed to in ordinary life.

Now who avails himself of the help offered by the house psychologist ?

Obviously those who need it, the ones who are having problems, because according to their frame of reference they are doing the right things, but then, frequently, the outcomes they get are not the ones they expect. This is because this group, fro whatever reason, persist in having the wrong responses, the wrong attitudes, the wrong reactions, the wrong way of going about things, the wrong way of dealing with problems, the wrong way of meeting problems and resolving them, the wrong way of responding, of self monitoring, of self governance, of self responsibility and ultimately of control. Nearly all of it is a problem of control.

These are the cases a house psychologist has to deal with to try to help put them right.

Now I get a lot of abuse because I contradict mainstream thinking on all this.

Consider the quiet ones in the corner, who don't fall prey to doing all of the above. They don't need any help and have no reason to ask for any. They keep themselves to themselves. You don't hear them whinging and complaining because they have no reason to.

The house psychologist's skills are not needed by this group. They have a totally different way of going about things and tackling problems. The house psychologist acquires a template to help individuals with problems.

He does not acquire a template for the other group. There is no need for one. The other group do not even comment, they just get on with it. Therefore you could say that the template for the successful ones is missing.

Additionally, the successful ones are apt to guard themselves against being asked too many questions, as it is in their interest to protect their proficiency (notice that I say proficiency and not an edge, because that comes much later) so what happens ? Everyone gets to be familiar with the nature of problems but everyone remains in the dark about non problems.

When I bring this up, I get a lot of abuse.

Now another example.

Some time ago the question of stops was being discussed.

Again, when I commented incisively on it, it served to stimulate the rowdy element as well.

Without going into deep details I explained that efficient traders use very tight stops because efficient traders get it right many many more times than they get it wrong, that is why they are efficient traders, OK ?

Therefore efficient traders are surprised and shocked when they get it wrong. The fact that they use very tight stops immediately limits losses.

Inefficient traders are apt to use wide stops and some blighters none at all !
They now begin to argue, yes argue, that to use a wide stop is the right thing to do because it allows a position to "breathe" and other nonsenses. When it is pointed out that wide stops used by inefficient traders who get it wrong often and really ought to fiercely control losses, they get abusive, or, begin to argue.

That is why I have so many posts under my belt. I have tried in the past to illustrate lots of ideas. These ideas are immediately recognised by a few who go on to use them beneficiallly which pleases me enoromously. The great majority see fit to argue and argue and do not progress.

I am accused of being among other things, a charlatan, a wordsmith, an autocrat, etc.,

The problem is that a lot of people forget about the message being delivered to them and only concentrate on the way the message is delivered and so miss the content altogether.

OK, I will explain.

The single most important thing you have to concentrate on is limiting losses.
You do this by using stops.

As you become more procicient at picking winning moves you have to tighten your stop loss policy.

Limiting losses to the absolute minimum is the key. All else is peripheral.

Now that is a simple statement.

If everyone did this, everyone would survive long enough to eventually become proficient.

But very few have the self discipline to persist in this way.

I strongly suggest you follow the lead I have just given you.

 

[5b4closing]

I always use the 10 day ATR setting for stop losses. Depending on the volatility of the stock, I will use 1.5 the 10 day ATR as a minimum. I have used the 2. 00 X 10 day ATR for more volatile issues. These parameters are set for daily charts of the stock. As the stock moves the ATR will expand and contract - so you need to key a close eye on it and adjust the ATR as it moves forward.
Top trades!