Stop Loss Techniques?

[MakeMe$$$$]

How do you determine a reasonable stop-loss?

Obviously the idea is to not get caught with your pants around your ankles but how much below your current or average price do you consider as a safety net without being triggered too easy?

FWIW, I am currently using 20% below my average value at the time of my purchase. After that, I plan on bumping it up the same percentage the value of the share increases to roughly keep it at 20% of any new average value.

So...it looks like this.

Purchased at $100 then stop-loss set at $80.
Value increases to $110 then stop-loss set at $88.

Just tossing that out there for discussion. I'm curious if folks think 20% is too much or not enough? I tend to think it might be better at closer to 10-15%.

BTW...I'm not sure that a stop-loss-limit makes any sense to me yet. LOL

[TSPDave]

I think if you are investing in TSP, a stop-loss limit has to take the limitations on IFT into account. If you get caught early in the month with 2 IFT, you may not be able to reinvest in your original fund as the market goes up. Just something to consider. Sorry for not answering your question, still figuring this whole thing out too.

[crondanet5]

Stop-losses can backfire on you depending on the stock's volatility. I trade VXX, and it makes wild daily moves (love it). But that means oftentimes I buy low and sell high after holding it during a spell when its price dropped well below my buy price. If I had used stop-loss I would have lost money on the trade and that capital was lost during the settling period so I cannot make up the loss on another trade with that cash until the trade settles. My trading method is simple: buy a thousand shares, let the stock go up 20 cents, sell it and pocket the $200 gain. If you study the nasdaq.com interactive charts you can get a feel for the stock's trading pattern and buy and sell accordingly. Am I correct you would prefer gains to losses? If yes, the key is avoiding the urge to hold a stock too long to make those few extra dollars. All too often the stock retraces and you end up wondering if you should sell it at a loss because it appears it will never recover. And you lose. It's not much different than staying too long in the S Fund when the chart indicates it is at the top of its upward movement. You gotta know when to fold 'em, when to hold 'em, and when to sell 'em..

[WxMan0523]

Know when to walk away...know when to run...

crondanet5, not to derail the original thread, but I've seen a few posts in here about VXX (and may there was one other sorta tied to it). Is there a good site with a long positive track history that gives heads up when to get in/out of this day trade special? May I ask (in general terms) how well you've done (i.e. started with a few hundred bucks and now have 10K or 100K or I hate you hahaha)

[crondanet5]

I like nasdaq.com interactive charts. Use the 5 day. Study the ups and downs this ETN does every day. Fascinating. Why does it go up around 1030 and again around 1400? Yes there are down days and down weeks when the market is moving higher. Use that time to settle some of your trades and accumulate capital to trade it again when it moves up. WxMan if you only have a few hundred dollars you should not be trading stocks. Goto Mr.Moneymustache.com and read all his posts, change your lifestyle, gain wealth, and then begin trading. BTW, so far 2015 has been a pretty good year. Got a ways to go to confirm that but good so far.

[MakeMe$$$$]

Certainly how volatile a holding is has to be considered. As it stands I am holding 2 health care ETFs that are doing very well but perform quite differently.

VHT has netted me a tad over 12% compared to the S&P 500 that netted about 7.4% in the 3 months I have owned it. Its max draw down in the last year has been about 7%.

BIB is a recent addition with a rather small position. It is a rather wild child being a 2X leveraged ETF. While Vanguard says this is not really and ETF for a buy & hold strategy, it is proving to me to be a nice little gem. In 3 months is has netted nearly 40% compared to the S&P 500 7.4%. However it is very volatile. At one point it had a nearly 45% draw down...OTOH...it has nearly doubled since then. I wish I was in it back in mid April.

So...in context I don't think I need to worry about a 20% overnight loss in VHT. The health care sector is doing very well and perhaps the one speed bump comes in a few months when the Supreme Court hears arguments on the ACA. Even then there are pundits that don't think that should have any lasting affect no matter the outcome. The bottom line being that I should be able to consider options if that sector takes a turn for the worse.

OTOH...BIB could easily toss away 5-10% and then recover...or drop 20% in a couple days.

I guess that my risk tolerance is such that I can handle the swings but if I died at the switch my widow would not see a total loss. LOL

[crondanet5]

Use the nasdaq.com interactive chart 1 year setting to see if they have highs and lows throughout the year. If yes, sell high, keep the cash from that sale separate in your account and buy more shares of it when the price goes down. The money remains allocated toward that ETF whether it is in cash or in shares of the ETF. If you can decipher the highs and lows you will MakeMoreMoney for MakeMe$$$ than simply buying and holding. Now another thing I avoid is diversification. Why hold something that is going down in value simply to declare yourself diversified. I prefer to be divestified when that group is going down and buy back in near the bottom. Don't you? Another note from the back of a cocktail napkin.

[MakeMe$$$$]

I'm actually not very diversified. I use a service called Sector Surfer to help locate the best sectors and then the best ETF/Mutual Funds within that sector. Both of my Vanguard holding are within the health care sectors and doing well. So, I'm not buy and hold as in long term but I don't day/week trade either...yet. LOL

I'm getting a bit better at it and perhaps in a couple months I will play with techniques you are suggesting. Baby steps.

BTW I used yahoo charts to see what you are saying to look for. I really need to find a good course on how to best read charts for technical trend info.

[crondanet5]

We all do. Just remember we are up against traders using really sophisticated programs and minute-by-minute trades. It's tough too beat them.

[catn_ip]

Why not use a trailing stop? It will follow and reset your sell point as price increases automatically. You just have to determine a reasonable percentage for the particular equity with regards to it's customary price action. If you are looking at something that's extremely volatile, I would probably pass, as you're likely to get stopped out early on if price turns against you as soon as you have entered the position... but something relatively calm is another story...

[Tomanyiron]

Why not use a trailing stop? It will follow and reset your sell point as price increases automatically. You just have to determine a reasonable percentage for the particular equity with regards to it's customary price action.

Exactly catn_ip. No one might remember but I posted about trailing stops last year. I did a lot of back-looking into 2012 and 2013, and I came up with what I thought was a good trailing stop plan. Then March & April 2014 came and messed it up. What was "a reasonable percentage" didn't seem reasonable anymore. Extreme volatility can make a disaster out of a % lost trailing stop. Ironically like now and the volatility we have been having since December.

[MakeMe$$$$]

Why not use a trailing stop? It will follow and reset your sell point as price increases automatically. You just have to determine a reasonable percentage for the particular equity with regards to it's customary price action. If you are looking at something that's extremely volatile, I would probably pass, as you're likely to get stopped out early on if price turns against you as soon as you have entered the position... but something relatively calm is another story...

I haven't seen a limit option of "trailing stops" with Vanguard. I will look into that more closely then. That is EXACTLY what I was wanting to replicate manually but, again, I'll double check that. Perhaps that is only a stock function? I'll check that out too.

[MakeMe$$$$]

Just got off the phone with Vanguard. Vanguard does NOT do trailing stops.

[crondanet5]

I heard the co-founder of The Motley Fool on Wealthtrack. He observed Vanguard is not cheap, rather, they do not advertise so they do not have to cover that expense. I want to have a trading platform that allows me to buy and sell an ETF every business day if I choose. Vanguard is not that platform. If you use it you are as stuck in what you can do outside the TSP as you are stuck by the 2 IFT restriction inside the TSP. Everyone should do more research and figure out the best platform to trade as they please.

[catn_ip]

Some time ago, I opened an optionsExpress account to check out the virtual trading platform... I never funded it because I could never quite get used to it ( it was sluggish on my computer compared to Scottrade) but... they do offer trailing stops. They offer trading in futures, stocks, mutual funds, ETF's, bonds and equity and index options. No minimum balance required on a cash account and just $2,000 required for a margined account. And yes, trailing stops for options in case you were wondering... tons of wonderful tools and there's a very helpful person just waiting to chat at their website. You could always open an account to access the platform and virtual trading without risking anything to see if it might be a good fit for you...