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+--- Thread: Stop Loss Positioning Guide (/Thread-Stop-Loss-Positioning-Guide)
RE: Stop Loss Positioning Guide - keithbin - 2015-11-25
excellent question, I have the same issue. In one respect it's a 'nice' problem to have, but then one doesn't want to run the risk of seeing a huge chunk of your profits disappear. Will be interesting to see what the views are here
(2015-11-24, 04:52 PM)mongoose1969 Wrote: Before I start to gather capital for new purchases, I'm evaluating my current holdings (of which there are many Stage 4 stocks). My first step that I'm taking is looking at what stocks I hold are currently Stage 2 and where to start putting the sell stops. I'm evaluating my holding of AMZN and it seems to be a great Stage 2 stock at the moment, but the dips aren't coming anywhere close to the 30 week MA. Do I still set a sell stop below the MA even if that means 20%+ drop to reach it?
Here is a link of my chart. Huge assumptions that I've set it up correctly. http://schrts.co/WzuWn5
RE: Stop Loss Positioning Guide - isatrader - 2015-11-25
(2015-11-24, 04:52 PM)mongoose1969 Wrote: Good morning,
Before I start to gather capital for new purchases, I'm evaluating my current holdings (of which there are many Stage 4 stocks
Here is a link of my chart. Huge assumptions that I've set it up correctly. http://schrts.co/WzuWn5
Thanks in advance for the advice. At the moment, there is no sell stop set. This is my first one.
It depends whether you are a trader or an investor, as the stop positions for both are very different. If I assume that you're an investor then the stop loss position is a long way a way currently, and the stock is in Stage 2B with three continuation moves in the last year since it's Stage 2A breakout. So I believe the book suggests taking some profits off of the position when it's extended after such a great Stage 2 run, as it is in the later stages of a normal holding cycle of up to 12 months.
The reason for the wide stop losses in the investor method is that they are more disaster prevention stops imo, as you need to allow stocks to make natural corrections based on their own normal volatility when they get extended to give the change for the moving averages etc to either catch, or pullback all the way to test previous lows. Think about it a different way. AMZN is currently 89% above the Stage 2A breakout level in under a year, and has already had one 22% correction, which if you'd had a tighter stock than the investor stop method suggests, would have made you miss the additional 42% of the up move.
I'd say as an investor the stops are there to protect you from disaster, and are not the same as trader stops, so only put them where you are willing to actually give up on the investment. Of which the investor method stop is a good guide imo.
So make you own decision on how to proceed. But I recommend re-reading the stop loss sections in the book and looking at historical examples of stocks in similar positions.
RE: Stop Loss Positioning Guide - mongoose1969 - 2015-11-25
(2015-11-25, 09:24 AM)isatrader Wrote: It depends whether you are a trader or an investor, as the stop positions for both are very different. If I assume that you're an investor then the stop loss position is a long way a way currently, and the stock is in Stage 2B with three continuation moves in the last year since it's Stage 2A breakout. So I believe the book suggests taking some profits off of the position when it's extended after such a great Stage 2 run, as it is in the later stages of a normal holding cycle of up to 12 months.
The reason for the wide stop losses in the investor method is that they are more disaster prevention stops imo, as you need to allow stocks to make natural corrections based on their own normal volatility when they get extended to give the change for the moving averages etc to either catch, or pullback all the way to test previous lows. Think about it a different way. AMZN is currently 89% above the Stage 2A breakout level in under a year, and has already had one 22% correction, which if you'd had a tighter stock than the investor stop method suggests, would have made you miss the additional 42% of the up move.
I'd say as an investor the stops are there to protect you from disaster, and are not the same as trader stops, so only put them where you are willing to actually give up on the investment. Of which the investor method stop is a good guide imo.
So make you own decision on how to proceed. But I recommend re-reading the stop loss sections in the book and looking at historical examples of stocks in similar positions.
Thanks! You are correct in your assumption. I'll be working this strategy from an investor point of view. I understand where the initial stop loss should have been (had I known about this strategy a year ago) and was working through the chapter to make my decisions about the trailing stop loss set points. I appreciate you bringing up the point of a holding cycle lasting about 12 months which will cause me to consider my current position stake.
For now, I'm going to protect myself at the previous continuation move. and see what happens. Off to re-read!
RE: Stop Loss Positioning Guide - kero - 2016-06-18
I'm reading this really interesting topic, and I have a question.
Maybee I didn't sleep enough and so, I'm not understanding something perfectly obvious. But still: I don't exactly understand the ATR-stoploss distance that you calculate for each stock. What does this percentage exactly represents ? If possible, could you give an example of the complete calculation that you do to get those percentages ?
RE: Stop Loss Positioning Guide - isatrader - 2016-06-18
(2016-06-18, 07:48 PM)kero Wrote: I'm reading this really interesting topic, and I have a question.
Maybee I didn't sleep enough and so, I'm not understanding something perfectly obvious. But still: I don't exactly understand the ATR-stoploss distance that you calculate for each stock. What does this percentage exactly represents ? If possible, could you give an example of the complete calculation that you do to get those percentages ?
In these examples I added the caculation for the ATR(200) - which is based on the percentage move relative to the 200 day Average True Range (ATR) of the stock. So measures the distance of the stop loss position based on the stocks average volatility.
It's purly a reference figure to help me get an idea of the average distance from the entry point to the stop loss, using a volatility measure to even out the results between the small and large cap stocks, that vary wildly in volatility. Personally, I find it very useful as gives a rough guide to how far based on volatility that Weinstein finds acceptable to place the trader and investor stop loss in his recommendations. For example I found that for a trader stop loss that it should never really excceed 3x the ATR (200) i.e. 3% ATR. And for the investor positons it would generally be under 5x ATR (200) i.e. 5% ATR.
RE: Stop Loss Positioning Guide - kero - 2016-06-19
Ok. I understand the concept and how it's useful. I was, myself, trying to figure how to deal with volatility since long time. Clearly, it needs to be integrated in the way we deal with the stoploss.
The only thing I don't really get is when you write "3x the ATR (200) i.e. 3% ATR". Ok: the stop is at 3 times the ATR. That's clear. But I don't see in what sense you say that this corresponds to 3% ATR. 3% of what ?
Not so important anyway.
RE: Stop Loss Positioning Guide - isatrader - 2016-06-19
(2016-06-19, 11:15 AM)kero Wrote: Ok. I understand the concept and how it's useful. I was, myself, trying to figure how to deal with volatility since long time. Clearly, it needs to be integrated in the way we deal with the stoploss.
The only thing I don't really get is when you write "3x the ATR (200) i.e. 3% ATR". Ok: the stop is at 3 times the ATR. That's clear. But I don't see in what sense you say that this corresponds to 3% ATR. 3% of what ?
Not so important anyway.
It was simply a way to shorten it for myself so I didn't have to write 3x ATR(200) everytime or 300% ATR(200), so I simply shortened it to 3% ATR as it was only for my personal reference, so didn't really matter. So as long as you understand that it means 3 times the 200 day ATR, it can written anyway that you wish, if it's something that you are going to use.
RE: Stop Loss Positioning Guide - kero - 2016-06-19
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 ?
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.