The stop loss lie

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jimdene

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Post Number: 145
Registered: 07-2005

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Friday, August 24, 2007 - 01:18 am:

I have lost heaps using the mandatory, "I must have a stop loss in order to minimise losses", because my god, every time I enter a transaction, lulls me into a false sense of security, hits my stop losses, makes sure I am out of the market and then happily rises back up.
I have fooled him this time, by putting my meager reserves into BHP and RIO and said, sod you, I will ride it out and for the first time I am in front

rdumas

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Post Number: 763
Registered: 11-2006

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Friday, August 24, 2007 - 12:08 pm:

Hi Jimdene,

Welcome to medium term investing. The next thing you'll do is learn fundamental analysis

.

When I traded futures during volatile market periods it was very stressful. During this recent market bashing I slept peacefully.

easymoney

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Post Number: 37
Registered: 03-2005

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Friday, August 24, 2007 - 01:45 pm:

The stop loss sure can drive you nuts, but trading without one is too close to russian roulette for me!

The only thought that might help is to think of it is a part of pre-planning a trade. You decide which direction the price will move. You decide your entry point. Some people set a target, but everybody should have an idea of how much potential for profit exits.

You should also decide how far it has to move the other way over what time frame before you will know you were wrong. The best time to do this is before the trade.

The key idea is to know how much money you are going to lose if you are wrong, how much money you are going to lose if something disastrous happens, and how much money you expect to make as a minimum if you are right.

(Message edited by easymoney on August 24, 2007)

Two of them say they're Jesus.
One of them must be wrong.

Industrial Disease
Dire Straits

maxboost

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Post Number: 170
Registered: 12-2005

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Saturday, August 25, 2007 - 05:46 pm:

Hi rdumas
I would have thought you would want volatile markets as a futures trader. As for fundamental analysis I haven't seen much done on this site.
have a good one.

captain_chaza

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Post Number: 2649
Registered: 02-2003

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Saturday, August 25, 2007 - 08:03 pm:

"Long live the Goose!" I say
It should be "Plain Sailing" from here on
I hope?
What is your SHORT TERM VIEW!

Please Don't give me,
"She'll be right in the Long Term?"
because of some simple lack of understanding or some cheap group of words to comfort those that are lost at sea

I am not as young as are others here at IC and therefore by definition I am "LESS PATIENT"

IRX

Salute and Gods' Speed

PS Please note that RIO raised the $41 Bln to cover/finance their $41 Bln fetish with Alcoa in minutes!

So, Where is this so called credit squeeze?

PPS: The Greatest Problem with "Plain Sailing" conditions after such a POOPING Of The Decks is to distinguish between

The GOOD, The BAD, and The UGLY?

This is not an easy task as nearly all look like diamonds in a coal mine ATM

"While we stop and think, we often miss our opportunity." Publilius Syrus, 1st century B.C.

"I believe the future is only the past again, entered through another gate."
Sir Arthur Wing Pinero 1893

"There are two times in a man's life when he should not speculate: When he can't afford it, and when he can." Mark Twain, 1897

captain_chaza

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Saturday, August 25, 2007 - 09:17 pm:

Sorry Jimmy Dean
I forgot to make my point in the above post

I Do agree with you re the Futility of Stop losses most of the time

I am OK with them If they can be kept to "Small"

If not I like to set about to "Averaging Down"!

I find this a very difficult tack and lots of considerations must be taken onboard

In an ideal world one would think you could average down once but I have found lately that 2 times is best

Salute and Gods' speed

PS I think they are designed to give the greedy CFD'ers a false sense of security

"Time Will Tell"?

rdumas

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Post Number: 766
Registered: 11-2006

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Sunday, August 26, 2007 - 08:40 am:

Hi Maxboost,

My futures trading ended in 2001 after some of the hairiest rides in the market that you can imagine. It was an extremely volatile period where you really needed to keep your wits and nerves about you. When I entered the quieter period of my life about2 years ago I decided that I needed a much less stressful life so now concentrate on medium term investing. It's much less stressful and very rewarding.

I'm surprised that you haven't noticed the amount of fundamental analysis discussion that we have on the "Our Daily Bread" thread.

resillent1

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Post Number: 185
Registered: 10-2006

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Monday, August 27, 2007 - 02:21 pm:

Without a quantitative point of knowing where you are wrong (stop loss) how do you go about determining position size and controlling risk.

This post is not meant to be an argument for using stop losses but a query as to how people go about managing their risk and setting their position size when not using a TA stop loss.

Cheers

Resilient

rdumas

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Post Number: 770
Registered: 11-2006

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Monday, August 27, 2007 - 02:45 pm:

Hi Resillent1,

I used to use accurate stop losses when I was a short term trader trading small numbers of stocks (or futures) at any point in time. Now that I am more a medium term investor I attempt to control my risk by running a portfolio of a minimum of 10 stocks initially but built up to an average of about 20 stocks.

The stocks are always selected based both on TA and FA grounds. From an FA perspective they have to have strong financial health, provide good value based on several financial ratios, good forward earnings estimates and relatively high liquidity.

From a TA perspective they need to be in a stage 2 Weinstein phase, have significant support levels not far beneath the present price action and not much overhead resistance. My reading of the overall market based both on fundamental and TA grounds needs to convince me that we are in a continuing bull market.

Based on the above parameters I know that my theoretical risk on an individual stock is a complete wipe out of that stock which represents a loss of about 5% of my working capital. On the basis of the parameters used to select the stocks that likelihood is quite remote and more realistically I could have a worst case scenario of a 30% drop in price of an individual stock which would represent an individual stock risk of 1.5% of my overall portfolio.

For that reason I can run quite large stop loss levels which allows a lot of lee way for my stocks to range in. It would take a significant change in the fundamentals of a stock for me to get rid of it. From a TA perspective I would allow a change in the share price of an individual stock fall around 30% for a short period of time (say a month) before becoming mildly concerned about it. I would give it time to recover. If it didn't do it in a reasonable amount of time I would get rid of it and get into a replacement stock.

eblode

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Sunday, September 02, 2007 - 09:41 am:

Hi Rudy,
Back from Surfers Paradise and the storms of the past week.Did have time to read for the 4th time Stan Weinstein"Secrets For Profiting in Bull & Bear Markets". What puzzled me was his complete disregard for PE earnings.
Example after example he gives of low PE's and real disasters against high PE's and northbound profits. How different from yours and ODY's assessment. He has an interesting chapter on "shorting" in bear markets which I have never done. Have you? and is it too risky??. Your above comments on STOPS is very timely. I have neglected to do this in the past but feel I must be more careful in the future and place stops more accurately as a sneak "attack" from some direction can happen too suddenly in this present market.
Anyway I am looking forward to Monday and the announcement from GBG which caused a trading halt on Friday. Expect a lovely bonus on this one.
Great to be back in action.
Eugenio

rdumas

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Sunday, September 02, 2007 - 10:52 am:

Hi Eugenio,

Great that you are back in the fray. It sure is an interesting period at this time but I strangely feel quite comfortable about it in spite of all of the bears about the place trying to scare the hell out of everyone.

Stan Weinstein is primarily a TA exponent and doesn't pay all that much attention to FA at all. In fact he does mention in his book that quite often the stock goes up for years in spite of very high P/E ratios. My experience is that there are many stocks in which the TA and FA are diametrically opposed and there is no doubt that to be in those stocks would be perilous. When however TA and FA both say the same things you get a very powerful combination.

I continue to use both in the market finding both to own individual strengths and weaknesses. Admittedly if I were banished to a desert island and was told that I could only have one of the two then I would chose TA. But since that isn't the case I will continue to use them both because in my opinion the more information you have about any subject the better prepared you are to benefit.

I only go 'long' in the market as most instruments that allow you to short are either leveraged or carry a time constraint. Super Fund regulations don't allow you to use some trading instruments.

msparks

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Sunday, September 02, 2007 - 09:47 pm:

Hi Jimdene
I am still trading the "mini" indices but with only a small amount of cash left , some 20% of the original small CFD trading account i set up.

Trading these is not at all easy and requires some trend following indicator, IG has a supertrend indicator which looks similar to an atr stop loss line.
I have found most indicators completely useless when trying to use tight "manual" stops, the spread on "GSL" Stops makes it too hard unless holding positions weekly or monthly and with the volatility, would probably be stopped out anyway,and to allow that much room would be too costly, even though the indices have been swinging back and forth, "which often would" allow recovery of loss's if one was game to stay the course.

My strategy now is to waite for a tight range, hopefully with a triangle pattern and take a position within the boundaries of the range or triangle.
If the trade goes into profit, i exit when the trend indicator reverses,if the trade goes against me,i submit a buy or sell for 2 contracts in the opposite direction, after the price moves past the range or triangle boundary, but i never allow the loss to be more than $50 regardless.

With only 20% of funds left, i am hoping this strategy will deliver some consistent results as my goal is to trade indices for income ,if if if i can get some consistent profitable results.
No more silly mistakes.

hilarius

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Registered: 04-2004

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Sunday, September 02, 2007 - 11:37 pm:

I think successful index trading requires large capital, large risks and large rewards

It also requires a prohibitive amount of screen watching unless one is a young, healthy committed full-time or highly dedicated part time professional

There has to be a better way to live

With Best Wishes

Hilarius

I come in peace to share my thoughts and to shine my candle light on pos