How do you determine where to put a stop loss
Is there any guidline to set a stop loss in a volatile market when the intra daily swings could be temporarily very big and you don't want to get out too quickly while the stock recovers back?
Answers
2769 points
Oldman answered one year ago …
If the beta (std deviation of prices of the security) is high, then I would suggest a stop-loss (not a public one unless the float is huge, or manipulation will force you out...make sure the trading platform you use keeps your "StopLoss" and other buy/sell conditions absolutely secure from any other traders!) ... at minus 1.5 x the beta of the prices. In other words, if the security has a variability of +/- 25 %, then set a stop-loss at about (-37%).
Another reason for a stop loss is to prevent a large loss in the posrtfolio. I generally don't use them, because each security that I hold has a 2 percent cost of position in the portfolio. If it goes to zero, as AHM and DFR and Thornberg (almost), that's at most a 6% loss in the portfolio, which pays dividends in excess of 9%.
1130 points
sundarkambam answered one year ago …
Generally people who trade frequently set a stop loss at 5% . That is in Normal Market conditions.
Now in these volatile market conditions where the stock price move up and down by more than 5% , setting a stop loss at 5% will mean frequent selling and buying which will erode the capital mainly because of the difference in the buying and selling prices and the dealing charges.
Now what is the solution to your problem.
It is based on a concept called Minor Tops and Minor Bottoms.
For more on what these means and how you can use them, see the link :
http://www.profitfromprices.com/Stoploss.htm
546 points
warren answered one year ago …
Oldman has a very good answer although some may be confused. I Like to find support and resistance lines and use uptrend lines as well. If the up or down trend line is brokedn that is a signal, especially if it is a very steep line of 45 degrees or more if it is broken a change in trend is implied and its a good time to pull half or a third of your position or all if you've made enough. Also with support lines I like to have a stop just below as the price can be manipulated down to set off your trade.
As always don't try and predict the market in the short term, let the market tell you where it wants to go. However it's easy to predict a market in the longer term by using fundamentals, and if you don't use leverage then there is no rush.
Good Trading
Warren
www.preciousmetalstockreview.com
