Question about swing trading and placing stops??

[DigitalDopeman]

Im new to trading and having been doing a lot of reading and have a few questions. Say for instance I don't have time to watch the charts all day and want to take positions on an opportunity I see. If I take positions at $10 a share and wont have time to check the charts constantly, how do know where to set the stop at? can someone explain this because every example I read on stops talked about, if u buy a stock, then it goes up, place a stop to protect your losses.I haven't read anything about placing stops right after you buy positions. Any help or clarity is appreciated.

 

[elliot.baker.eb]

Coming from another total newbie I would suggest you place your stop loss at the higher of the absolute maximum amount you're comfortable losing or the point at which you think if the price goes below that point then your original assumption for making the trade was incorrect and the price is going the other way for the relevant future.

If the trade goes well then you can bring the stop up to lock in profit with an eye on the general volatility of the stock so you don't get stopped out by the price fluctuations.

This is what I gather anyway.

 

[Dowser]

A lot of traders will calculate their stops based on a percentage of their trading capital. So if they lose they might take a hit of 1 or 2%. If you find you're getting stopped out a lot, consider buying less shares so you can give your position more breathing space.

 

[tomorton]

The TA which identifies your entry at point X into this market should also identify point Y which is your stop, and point Z which is you profit target.

So, yes, as elliot says, a point at which the TA would now say your original buy conclusion has now been proven wrong, would be a place to put your stop.

The profit target is more difficult but you can get clues from e.g. previous support/resistance levels. Previous resistance to a rising price could be resistant again so a target just below that price would make sense. Previous support could become resistance if price is now rising towards it so ditto for this. Most people say once your profit equals your original risk you have a decision point - either move the stop to entry so the worst that can happen is you break even if the stop is hit, while of prioce continues to move in your direction you will just increase your gain at no extra risk. Or close the position - after all, you wanted a profit of £x00 and now you've now got it so why not put it in the bank? Do you think price will move in your direction for ever?

 

[tomorton]

A lot of traders will calculate their stops based on a percentage of their trading capital. So if they lose they might take a hit of 1 or 2%. If you find you're getting stopped out a lot, consider buying less shares so you can give your position more breathing space.

I know the 2% rule, I have used it and quoted it myself. I think it was devised by Dr Alex Elder. My own trades are currently running a bit above this, just over 3%: I'm not a novice but still conservative.

But I wonder if we should give the 2% rule such unquestioning faith? I might start a thread on this.

 

[Dowser]

I know the 2% rule, I have used it and quoted it myself. I think it was devised by Dr Alex Elder. My own trades are currently running a bit above this, just over 3%: I'm not a novice but still conservative.

But I wonder if we should give the 2% rule such unquestioning faith? I might start a thread on this.

Yeah, I think I read it first in 'Cum in my trading room' By Dr E. I suppose ultimately, it's down to experience and trading style. I use 2% for position trading stocks and 1% day trading the Dow where a bad run would give me the wobbles.

 

[Signalcalc]

My level of risk is conservative and hovering around 1.5% at the moment I am ramping it up slowly as I become psychologically adapted to each increased loss level until it reaches my max % level.

I calculated my % max level based on an article I read about calculating max drawdown and margin requirements before you would blow the account, but I know it needs increasing steps to reach that level and I don't think I will ever be comfortable at that level either.

I'll post a link to the article when I find it again.