No. of Recommendations: 11
Hi ww,

Do most of the TAers on this board use stops?
Trailing stops? How tight?
I have been using trailing stops at 2% and have been satisfied overall, but I have been sold out of a couple of positions that have gone North nicely after I was sold out.


Stops are only good for those traders who prefer to be in the game for the money, rather than the drama, excitement, cocktail bragging, etc. (IOW... all "professional" traders!)

Read deeply of Russ's linked page... it is an excellent beginning base of understanding!

Here's what you REALLY want to know;
A) Make your stops relative to the map of the market, NOT how much you think you want to win or lose (which matters... but is NOT best controlled by the stops... I'll explain further...)

B) After determining the 'most probable' market path (which is what trading is all about,) and committing to where you will place your stops... the MEASURE THE DISTANCE from your expected entry to your committed stop-loss. THIS is the "POSITION RISK."

C) You should have already (long before you initiated your first trade) determined what your overall risk tolerance is, and committed to a maximum PORTFOLIO RISK (with 5% generally, often, agreed as wildly loose... 2% being liberal... and 1% or less being "professional.")

D) Based on your portfolio risk tolerance %, determine how much in actual dollars you can "budget" to lay on any individually exposed trade,

E) Divide your chosen trade "share price" into your position "risk budget" to determine how many shares you can afford to trade in this particular play. THIS is how you manage your money (by adjusting your numbers of shares...) NOT by arbitrary percentage stops on individual positions.

SOME trades (upon reading the charts) may have a LONG entry-to-stop-loss distance. In order to take that trade, and stay within your portfolio risk budgets, you'd naturally have to scale your trade size way back in size. This makes PERFECT sense, and will keep you doing two things;
1) Avoiding getting over-leveraged in greed, and,
2) Constantly sniffing out the safer entry set-ups,

ALTERNATIVELY, SOME trades' charts show very close protection levels (entry-to-stop distance) where you can place your stops... and perhaps may have multiple protective levels, suggesting the market is very unlikely to break through and charge through multiple barriers. In such cases, since your distance between entry and stop-loss is small, and your position-risk is thus small, you can them divide that into your portfolio risk budget and lay on a much LARGER number of shares...

In fact... many professional trading operations will FIRE YOUR ASS if you DO NOT increase your share size to fit the calculations... since you cannot afford to reduce your appropriate wins/profits when you DO make the right trades... as they must overcome the natural numbers of wrong trades and stopped out losses.


TO SUMMARIZE;
DO NOT make your stops "fixed" as a universal percentage of price travel,

DO make your stops relative to the unique market chart you are trading,

DO manage your money-at-risk by determining your share/trade-size according to the position-risk based on your mapped-out stops...

BOTTOM LINE:
Good for you, for having the guts to learn about and use stops!!!

Far too many "failed traders" were never really in the game for the money (see initial paragraph above,) but actually for the emotional drama. After they flailed & went down in flames (exactly as they attracted in their focus of fear,) they then claim "it's a loser's game that nobody can win."

Trading IS a winnable game... but it takes work... on yourself, more than anything else.

Cheers,
Dave
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