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Thread: Stops

  1. #1

    Join Date
    Dec 2007
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    906

    Default 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!
    -- Tom | My Trades


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  3. #2

    Join Date
    Jan 2009
    Location
    Upstate NY
    Posts
    142

    Default Re: Stops

    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!
    "Don't let your highs get too high and don't let your lows get too low." Bullitt’s Market Blog

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  5. #3

    Join Date
    Dec 2007
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    906

    Default Re: Stops

    Quote Originally Posted by Bullitt View Post
    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.
    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. That could be one reason why Oscar rarely, if ever, holds onto a position after the markets close.
    -- Tom | My Trades

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  7. #4

    Join Date
    Feb 2009
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    654

    Default Re: Stops

    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
    If you think education is expensive, try ignorance. - Derek Bok

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  9. #5

    Join Date
    Dec 2007
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    906

    Default Re: Stops

    I haven't.
    -- Tom | My Trades

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  11. #6

    Join Date
    Feb 2009
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    654

    Default Re: Stops

    Quote Originally Posted by XL-entLady View Post
    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
    Quote Originally Posted by etftalk View Post
    I haven't.
    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
    If you think education is expensive, try ignorance. - Derek Bok

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  13. #7

    Join Date
    Dec 2007
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    906

    Default Re: Stops

    Thanks for explaining. Seems simple enough.
    -- Tom | My Trades

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  15. #8

    Join Date
    Jan 2009
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    84

    Default Re: Stops

    That makes sense, go girl!

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  17. #9

    Join Date
    Jan 2009
    Posts
    215

    Default Re: Stops

    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.


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  19. #10

    Join Date
    Feb 2009
    Posts
    50

    Default Re: Stops

    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.

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