Stops

A couple of our members mentioned stops recently. I too have had a love / hate relationship with them.

I trade futures as well as ETF's and stops are more necessary with futures because of the leverage, but they have probably cost me as often, or more, as they have helped.

The stop will keep you from taking a loss much larger than you are willing to take on when the market you trade gets away from you quickly, and that is where they act as a safety net. But more often than not, stops get hit just before the market turns back in your favor, leaving you behind or having you chase a position you had already been in.

Where you put your stop is obviously important and technical analysis is a key to that determination. The problem is, the market makers know where the technical stops are likely being placed, and they can make a run at them, particulary in a less liquid trading vehicle.

What say you? Any stories, experiences, or words of wisdom you care to share on the use of stops?

Thanks!

When I tried my hand at Forex with a few mock trading accounts, I used stop orders and couldn't believe how many times the violent low volume whipsaws during the sleeping hours wiped out my positions. If I traded Forex or Futures as you do Tom, I would still use stops because of the fear of losing on leverage.

However, as stops in general, if I use them, I try to think to myself more of- 'at what point would I feel the pain?' instead of 'at what point will support fail?' So, especially in this market, as evident by Thursday's bear trap, everybody is watching certain support levels so most of your stop orders will be clustered around those levels. I try to think outside the box, and when I place buy orders for example, I don't play for a perfect world and often set my first buy order a small percent above a support line, second at the support line, and third below the support line. Sell stops, I usually just use a percent trailing stop but make sure to monitor where any potential for clusters or buy/sell orders may lie.

I don't know. I guess it comes down to what levels you can watch a position drop down to and still sleep at night. It's a pretty crummy feeling to see a 7% whipsaw stop you out while the holding moves on to rally 15%. Then again, it's not too good either to watch a holding go up 8%, and then drop 25% stopping you out with a loss instead of a previous gain.

Oh, by the way. I'm very happy I didn't use real money in the Forex account. I felt like I was playing open field, everybody versus everybody dodgeball at times!

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Originally Posted by Bullitt

When I tried my hand at Forex with a few mock trading accounts, I used stop orders and couldn't believe how many times the violent low volume whipsaws during the sleeping hours wiped out my positions. If I traded Forex or Futures as you do Tom, I would still use stops because of the fear of losing on leverage.

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I know what you mean. The S&P was OK but stops in commodities or currencies contracts, are very vulnerable in overnight positions. More than once I woke up, saw where the market was and thought I had made good money, only to find out when I checked my account, that a wild overnight swing stopped me out. :rolleyes: That could be one reason why Oscar rarely, if ever, holds onto a position after the markets close.

Has anyone ever used a double trailing stop before? If so, how? I'm trying to think about ways to lock in profit on that UCO ultra crude oil position.

TIA,
Lady

I haven't.

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Originally Posted by XL-entLady

Has anyone ever used a double trailing stop before? If so, how? I'm trying to think about ways to lock in profit on that UCO ultra crude oil position.

TIA,
Lady

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Originally Posted by etftalk

I haven't.

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I took a fairly large position in my UCO trade mentioned above and dollar-wise my gains are already making me smile. (Thanks you guys!! :bigsmile:) So I want to figure out a way to lock in some profit without getting shaken out of my entire position on a steep retracement before another run-up. So I just set up my first double trailing stop. I hope it works. :unsure:

Here's what I did. I set up one trailing stop to sell half my position at 9% retracement. Then I set up another trailing stop to sell the other half of my position at a much higher percentage of retracement.

I'll report back after they both trigger. This could be interesting. :rolleyes: :toung:

Lady

Thanks for explaining. Seems simple enough.

That makes sense, go girl!:bigsmile:

You will do well. It seems everytime I use a trailing stop, the stocks runs up, then pulls back and triggers the stop. I always lock in a profit unless there is a big gap down in price. Let us know how you do.:)

This is one method I use for stops. When 20dayma is falling, I buy when price hits the lower Bollinger Band. I then Sell 1/3 of the position when 5dayma is hit, Sell 1/3 of position when 10dyma is hit, Sell 1/3 of position when 20dayma is hit. Buying this way requires patience and a lot of luck though as the lower Bollinger Band could be hit more than one day.

When the 5dyma has crossed above a declining 20dayma and resistance has been broken (breakout) I don't use stops. I remain long as long as the 5dyma can stay above the rising 20dayma. Once I see the MACD and/or Slow stochastics topping out I sell the whole position and look for another opportunity. It sounds easy but it takes a lot of perspiration and a very strong leading stock or EFT to be successful.:bigsmile:

Thanks for sharing 14U

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Originally Posted by XL-entLady

I took a fairly large position in my UCO trade mentioned above and dollar-wise my gains are already making me smile. (Thanks you guys!! ) So I want to figure out a way to lock in some profit without getting shaken out of my entire position on a steep retracement before another run-up. So I just set up my first double trailing stop. I hope it works.

Here's what I did. I set up one trailing stop to sell half my position at 9% retracement. Then I set up another trailing stop to sell the other half of my position at a much higher percentage of retracement.

I'll report back after they both trigger. This could be interesting.

Lady

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My first stop on UCO ultra crude oil triggered first thing this morning. I made a whole two cents a share over my buy-in, and then the price started to rise again. :rolleyes:

Lady

You gotta love stops. Like I said, they have done more harm than good in my futures account, but because of the high leverage, they do protect you from disasters.

I have this option in my USSA ROTH IRA account called a Stop Limit, but I can't seem to get it to work right :(

Isn't that a stop at a specific price. The problem with those is it can fly through it without getting you out. Am I thinking of the right stop?

Looking at pre-market prices today, after I got stopped out of my TZA yesterday. :( Like I said earlier, I'm developing a real love/hate relationship with stops and it's mostly 'hate'! :wacko:

I'm starting to think that instead of using stops I'm going to start hedging with a small amount of the opposite ETF. Has anyone ever tried this instead of stops? If so, how did it work out for you?

Lady

Hi Lady;
May I make a suggestion? TZA as you know is a 3X Bear fund. It is very volatile. It is basically a day trading vehicle, getting the most bang out of your buck. When I own it, or any other ETF's I don't use stops other than mental ones. I watch the price in relation to the 20 day moving average. If the price can keep pulling that ma up (staying above it) I will continue to play the ETF. Of course I'm constantly trading with 4% increments so TZA or FAZ are constantly getting me in or out so my risk isn't that high as I'm only playing with about 10% of my holdings per ETF.
Buying TNA to hedge your TZA position will work providing you know when to sell your TNA position. There are a couple of ways to do this. See what Oscar says for S&P targets at livewithoscar.com (so you know about when to sell TNA) and take the hedge off. Another thing I do is look at a ratio chart. Go to stockcharts.com and type in TZA:TNA and add your favorite indicators. The indicators will show you if TZA is overbought or oversold in relation to TNA. Try CCI6or7, its one of my favorites. Hope this helps.:)

Thanks for the great advice! Rep points are the least I can do for this one! :)

Lady

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Originally Posted by Here$14U

Hi Lady;
May I make a suggestion? TZA as you know is a 3X Bear fund. It is very volatile. It is basically a day trading vehicle, getting the most bang out of your buck. When I own it, or any other ETF's I don't use stops other than mental ones. I watch the price in relation to the 20 day moving average. If the price can keep pulling that ma up (staying above it) I will continue to play the ETF. Of course I'm constantly trading with 4% increments so TZA or FAZ are constantly getting me in or out so my risk isn't that high as I'm only playing with about 10% of my holdings per ETF.
Buying TNA to hedge your TZA position will work providing you know when to sell your TNA position. There are a couple of ways to do this. See what Oscar says for S&P targets at livewithoscar.com (so you know about when to sell TNA) and take the hedge off. Another thing I do is look at a ratio chart. Go to stockcharts.com and type in TZA:TNA and add your favorite indicators. The indicators will show you if TZA is overbought or oversold in relation to TNA. Try CCI6or7, its one of my favorites. Hope this helps.:)

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Lady gave you rep points, me too! :bigsmile: Man do I have a lot to learn before I really dive in.

Simple Stop Loss Strategies
A Thomas

www.mutualfundmagic.com

We have established why a safety stop order is a requirement for the successful investor. Now lets look at some of the simpler methods. There are 3 basic methods (and many more we can not discuss here) for stops that virtually anyone can master. These cannot be covered in detail here, but you can do further research on ones own.

Any share, fund or Exchange Traded Fund (ETF) you buy you predict is going to go upward, but there is the chance that it may go in the other direction. The share you buy is $50 per security. Our numero uno thought should be how much am I willing to risk if I'm incorrect and that is called a mark down limit. Lets pick an arbitrary amount of $5. Thats 10%. If it goes downwards that is the maximum amount you should lose and you still have 90% of your spondoolicks remaining to find a better investment. When it goes upwards you can want to protect the surplus by moving the stop upwards.

When an stock advances to $55. 00 our stop of 10% should be moved to $49. 50 that is 10% of $55. When it goes to $60 ones stop is now $54. Nothing complicated here. There have been many equities that gone from $20 to $250 and then downwards to $2. 00.

As Ihave asserted before never buy anything unless it is going upwards. You add upward the closing premiums for the past 20 days and divide by 20. This should be done once each week and the number calculated is ones stop. The steeper the advance the shorter should be the number of days for the moving
average. If you are lucky enough to have one of those skyrockets you might even be downwards to a 5DMA. Some big swinging dicks use a 50 day MA and other participants even a 200-day MA. Mutual funds lend themselves to the latter,

Finding support and resistance pips requires a more classy approach. This is
something you are going to have to study. There are many places on the Internet that have short explanations with examples of how to determine
these ticks. It might rest for a while with a short upwards and downwards sideways pattern that forms before the following move further. Our stop should now be downwards at the point the recent upward move started .


This article courtesy of http://www.traders101.com.

Thanks Tom

This is the method I like most. But I have to wonder, if you use a 10% stop for a stock, do you use a 30% stop for a 3x ETF? :huh:

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Originally Posted by JTH

.... I have to wonder, if you use a 10% stop for a stock, do you use a 30% stop for a 3x ETF? :huh:

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Originally Posted by etftalk

Finding support and resistance pips requires a more classy approach. This is something you are going to have to study. There are many places on the Internet that have short explanations with examples of how to determine
these ticks. It might rest for a while with a short upwards and downwards sideways pattern that forms before the following move further. Our stop should now be downwards at the point the recent upward move started .
This article courtesy of http://www.traders101.com.

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JTH, figuring out how to set my stop on those volatile leveraged funds is one of the big reasons why I gave up on 3x ETFs!

Regarding using support and resistance to set stops, I've found that the fastest way to find support/resistance levels is to look at a Point & Figure chart. The places where the X's and O's stop are some of the support and resistance levels.

Lady

The more volatility, the more room you need to give. With this whippy ETF's, the mental stop might be best since they seem to go after the stops.