Posted by billrosen on 15th of May 2009 at 09:06 am
Best advice anyone could ever give a new trader is
trade only when you are sure it is a very smart and objective
decision, and then you will still be wrong half the time, but here
is the key, use an objective, not random, stop
everytime of not more
than a 3-5% loss.That way even when you are wrong on your 2k
trades you lose no more $100 and when you are right let them run
and make big profits. Be sure to take profits after and 8 - 10% run
up with 50% of your position and then raise your stop to your entry
and then raise your stop objectively should you be lucky enough to
get into a rocket stock that sails up quickly. The reason most new
traders lose their shirts is they do not think in percents, they
think in dollars...like OMG I just lost $300 in 15 minutes!!! When
in reality it might be a small orderly pullback or restest of
a breakout and everything looks OK. They panic and sell at the
wrong time because of their own fear or worse they do not
use stops and say a stock that is down 15% has gotta come
back and keep adding more capital as price drops. Pull up a
chart of FAZ or SRS and see how that strategy would have worked the
last 10 weeks. You would be wiped out. I always use stops 100% of
the time and while many times I get stopped out only to watch a
stock run back up, yes very frustrating, I always sleep at night
and average 10% per month trading...works for me.
bill -- I don't think its so valid to have an arbitrary 3-5%
limit for every stop order. To me it makes more sense to
decide how much of your trading capital you are prepared to risk on
each trade --1% or 2%, maybe 3%............and then adjust position
size according to where an objective stop falls for the trade you
are making, so that you are always risking an appropriate amount
(no profit without risk) but never more than is prudent for your
account size.
If you haven't read Tharp - Trade your way to Financial Freedom,
it will be the fastest profit from an expense to help you in this
market. I was unable to produce stable returns until I starting
using a spreadsheet for position size. Part of the exercise is you
can't enter the trade without knowing your stop. Tharp also has a
book on stops. Entries and exits from Dr. Alexander Elder is good
also if you have read his 'Come into my Trading room. Books for
thought. Wishing you some good trading success.
Posted by billrosen on 15th of May 2009 at 10:07 am
Michael agreed, if day trading, using trendlines as stops on a 3
or 5 minute chart would give a stop much tighter than 3-5%, I was
referring to a swing trade with those stops, point I never take a
loss more than 3-5% on any one position.
bill -- ok. If you're never giving a swing trade more than
3-5%, my question is, what is that based on? Where does 3-5%
come from? If its not arbitrary, then it has to be some
reflection of position size vs account size that gives you those
percentages, and then waiting only for setups that allow those
percentage stops. Which is a good discipline. I'm just
wondering where those percentages come from?
Posted by billrosen on 15th of May 2009 at 10:26 am
the max 5% loss rule is for me personally, if you lose 5% then
you have to make 10% to get back to get to even and in this market
the last number of year, techincal trading is a lot harder now and
often times sensible execution is not respected as we have seen
over and over again with this market. I am a longtime reader of IBD
and they have the 8% rule, same philospohy, I like to let my
winners run after I take half off after 10% gains and raise my stop
to entry, so I am OK getting stopped out maybe more than I should,
it is just what I do, certainly not saying it is right for
everyone.
Posted by fixdgear on 15th of May 2009 at 10:12 am
SO ON A 1.20 OPTION YOUR STOP IS 1.15?....thats doesnt seem
reasonable if you are trading options....it only seems reasonable
if you are trading $60 stocks.
every trade needs to have some room otherwise you continually
get stopped out and get whip sawed too easily.
Best advice anyone could ever
Posted by billrosen on 15th of May 2009 at 09:06 am
Best advice anyone could ever give a new trader is trade only when you are sure it is a very smart and objective decision, and then you will still be wrong half the time, but here is the key, use an objective, not random, stop everytime of not more than a 3-5% loss.That way even when you are wrong on your 2k trades you lose no more $100 and when you are right let them run and make big profits. Be sure to take profits after and 8 - 10% run up with 50% of your position and then raise your stop to your entry and then raise your stop objectively should you be lucky enough to get into a rocket stock that sails up quickly. The reason most new traders lose their shirts is they do not think in percents, they think in dollars...like OMG I just lost $300 in 15 minutes!!! When in reality it might be a small orderly pullback or restest of a breakout and everything looks OK. They panic and sell at the wrong time because of their own fear or worse they do not use stops and say a stock that is down 15% has gotta come back and keep adding more capital as price drops. Pull up a chart of FAZ or SRS and see how that strategy would have worked the last 10 weeks. You would be wiped out. I always use stops 100% of the time and while many times I get stopped out only to watch a stock run back up, yes very frustrating, I always sleep at night and average 10% per month trading...works for me.
STOP LOSS ORDERS
Posted by fixdgear on 15th of May 2009 at 09:30 am
SO IF U BUY AN OPTION AT 1.20 LETS SAY WHERE IS UR STOP?
stop loss size
Posted by Michael on 15th of May 2009 at 09:42 am
bill -- I don't think its so valid to have an arbitrary 3-5% limit for every stop order. To me it makes more sense to decide how much of your trading capital you are prepared to risk on each trade --1% or 2%, maybe 3%............and then adjust position size according to where an objective stop falls for the trade you are making, so that you are always risking an appropriate amount (no profit without risk) but never more than is prudent for your account size.
Where is your stop
Posted by schnellinvestor on 15th of May 2009 at 09:55 am
If you haven't read Tharp - Trade your way to Financial Freedom, it will be the fastest profit from an expense to help you in this market. I was unable to produce stable returns until I starting using a spreadsheet for position size. Part of the exercise is you can't enter the trade without knowing your stop. Tharp also has a book on stops. Entries and exits from Dr. Alexander Elder is good also if you have read his 'Come into my Trading room. Books for thought. Wishing you some good trading success.
or maybe much closer stops
Posted by Michael on 15th of May 2009 at 09:50 am
or maybe much closer stops on daytrades..............
Michael agreed, if day trading,
Posted by billrosen on 15th of May 2009 at 10:07 am
Michael agreed, if day trading, using trendlines as stops on a 3 or 5 minute chart would give a stop much tighter than 3-5%, I was referring to a swing trade with those stops, point I never take a loss more than 3-5% on any one position.
bill -- ok. If you're
Posted by Michael on 15th of May 2009 at 10:16 am
bill -- ok. If you're never giving a swing trade more than 3-5%, my question is, what is that based on? Where does 3-5% come from? If its not arbitrary, then it has to be some reflection of position size vs account size that gives you those percentages, and then waiting only for setups that allow those percentage stops. Which is a good discipline. I'm just wondering where those percentages come from?
the max 5% loss rule
Posted by billrosen on 15th of May 2009 at 10:26 am
the max 5% loss rule is for me personally, if you lose 5% then you have to make 10% to get back to get to even and in this market the last number of year, techincal trading is a lot harder now and often times sensible execution is not respected as we have seen over and over again with this market. I am a longtime reader of IBD and they have the 8% rule, same philospohy, I like to let my winners run after I take half off after 10% gains and raise my stop to entry, so I am OK getting stopped out maybe more than I should, it is just what I do, certainly not saying it is right for everyone.
ok, thanks Bill.
Posted by Michael on 15th of May 2009 at 10:32 am
ok, thanks Bill.
STOP
Posted by fixdgear on 15th of May 2009 at 10:12 am
SO ON A 1.20 OPTION YOUR STOP IS 1.15?....thats doesnt seem reasonable if you are trading options....it only seems reasonable if you are trading $60 stocks.
every trade needs to have some room otherwise you continually get stopped out and get whip sawed too easily.
have a good w/e
new traders should stay away
Posted by 1800promote on 15th of May 2009 at 09:36 am
new traders should stay away from options