Stage Analysis Video Training Course

Stop Loss Positioning Guide - Page 5

#33

RE: Stop Loss Positioning Guide

(2016-06-19, 12:21 PM)kero Wrote: Wink

I certainly will. I think that dealing properly with volatility difference is essential, and I think since a long time to a way to do it.

Additional question: do you use the distance entry level/stop level to define the weight of your position ?

The point is: let's suppose that all of our positions are of the same weight (10% of the portfolio, for instance), but with percentage distances entry/stop which are different (let's say, from 3% to 7%). The result is that some positions can result in little loss, some other in bigger loss.

A way to deal with it could be to balance the size of the position, so that the risk is always the same. It's a way to cancel the effect of volatility on risk (but also on gains). So, when thinking to this volatility issue, I have often considered that it could be interesting to have bigger positions when the risk is lower, littler positions when risk is bigger.

What do you think about that strategy ?

Yes, if you look back earlier in my journal thread you'll see that I use the ATR for position sizing as well to cancel out the effect of the different volatilty in each stock. So, the higher the voliatility the smaller the position size as I'm generally only looking to risk 2x the 52 week ATR on an investor position, and so my position sizes are calculated around that to make sure the risk is the same whatever the size of the stock.

isatrader

Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill - Reminiscences of a Stock Operator.
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#34

RE: Stop Loss Positioning Guide

OK. Thank you !

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#35

RE: Stop Loss Positioning Guide

(2013-03-30, 03:20 PM)isatrader Wrote: A note to myself to investigate: When a stock gaps higher and continues higher in the coming days. Does the low on the gap up day have the same significance as a pivot low. i.e. should it be considered as the nearest pivot low for placing the trader stop loss? Or do pullbacks go into the gap and so still need to go on the previous pivot low?

Did you ever look into this IsATrader?

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#36

RE: Stop Loss Positioning Guide

(2016-08-01, 02:55 AM)iRookie Wrote:
(2013-03-30, 03:20 PM)isatrader Wrote: A note to myself to investigate: When a stock gaps higher and continues higher in the coming days. Does the low on the gap up day have the same significance as a pivot low. i.e. should it be considered as the nearest pivot low for placing the trader stop loss? Or do pullbacks go into the gap and so still need to go on the previous pivot low?

Did you ever look into this IsATrader?

Yes, there's a book that covers it called "In the trading cockpit with the O'Neil Disciples". They call it a Buyable Gap-up. Here's a video on it: https://youtu.be/j9cEvu_xOgA

isatrader

Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill - Reminiscences of a Stock Operator.
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#37

RE: Stop Loss Positioning Guide

(2016-06-19, 12:21 PM)kero Wrote: Wink

I certainly will. I think that dealing properly with volatility difference is essential, and I think since a long time to a way to do it.

Additional question: do you use the distance entry level/stop level to define the weight of your position ?

The point is: let's suppose that all of our positions are of the same weight (10% of the portfolio, for instance), but with percentage distances entry/stop which are different (let's say, from 3% to 7%). The result is that some positions can result in little loss, some other in bigger loss.

A way to deal with it could be to balance the size of the position, so that the risk is always the same. It's a way to cancel the effect of volatility on risk (but also on gains). So, when thinking to this volatility issue, I have often considered that it could be interesting to have bigger positions when the risk is lower, littler positions when risk is bigger.

What do you think about that strategy ?

As a daytrader this is exactly what i did. However as an investor you are only moving risk from one piece(volatility) to the other piece (a bigger egg in the nest). I myself will have 40 positions in the end. I allow myself to loose 10% of every investment, which is 2% of my capital. I aim my 10% to be in the stage 1 range.

Btw, now I'm also thinking to another possible strategy. I'm refining my Money Management, and I think that I will introduce a rule, according to which only a defined part of the portfolio can be exposed. For instance, all the existent positions together cannot expose the portfolio to more than 5% of loss. That means that when I enter some positions, I need to wait some times, and only when those positions are "positevely" protected (= the stop loss is over my entry point) I can open new positions.

That could also be a way to deal with volatility, since when opening a riskier position, I'd have to wait more before to enter new positions. But they would still be of the same size.

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#38

RE: Stop Loss Positioning Guide

(2016-08-05, 08:56 PM)odlareg Wrote: Btw, now I'm also thinking to another possible strategy. I'm refining my Money Management, and I think that I will introduce a rule, according to which only a defined part of the portfolio can be exposed. For instance, all the existent positions together cannot expose the portfolio to more than 5% of loss. That means that when I enter some positions, I need to wait some times, and only when those positions are "positevely" protected (= the stop loss is over my entry point) I can open new positions.

That could also be a way to deal with volatility, since when opening a riskier position, I'd have to wait more before to enter new positions. But they would still be of the same size.

Yes, that's a risk management strategy that is quite well documented, as Alexander Elder outlined a very similar approach in his Come into my Trading Room book. But I believe he uses 6% instead of 5% though.

isatrader

Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill - Reminiscences of a Stock Operator.
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#39

RE: Stop Loss Positioning Guide

(2016-08-05, 08:56 PM)odlareg Wrote: Btw, now I'm also thinking to another possible strategy. I'm refining my Money Management, and I think that I will introduce a rule, according to which only a defined part of the portfolio can be exposed. For instance, all the existent positions together cannot expose the portfolio to more than 5% of loss. That means that when I enter some positions, I need to wait some times, and only when those positions are "positevely" protected (= the stop loss is over my entry point) I can open new positions.

I do exactly that.

I recently introduced such rules when refining my own Money management system. I also use 5% max risk of the portfolio. It limits the danger, by forcing me to enter only progressively in new position.

It's specially a good way to deal with the fact that the market analysis can be wrong. Only if market analysis reveal to be correct and the new positions become winning (and protected) I can open new positions.

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#40

RE: Stop Loss Positioning Guide

isatrader,
The first chart you displayed in your Stop Loss Positioning Guide, you said, was taken from pg. 185 of the book. My edition of the book shows the prior low before the breakout to be at the very bottom of the channel at the resistance line. Your chart is different. It shows the prior low above resistance. Huh, I thought there was just one edition of his book published w/no revisions. Can you confirm?

Reading Weinstein's book, I'm under the impression the initial stop loss is to be placed 1/8 ($.13) below the prior low before the breakout, as long as that would not be more 15% below the purchase price, using the investors strategy. Weinstein does not seem to imply the stop loss has to be below the bottom of the channel, if the prior low is not that low.

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