Posts Tagged ‘stop loss’

For me this was the most difficult question. Many time I opened a trade with a stop loss too tight only for the stop order to trigger and then bounce again leaving myself upset!

The idea is to setup a stop loss not too close but not too far either. So how do you set your stop?

I take this idea from ‘Come into my trading room‘ by Alexander Elder. It calls ‘The chandelier exit’ and it helps you to setup a stop loss out from the market noise.

The formula is very easy:

(Highest value of the last 22 bars-3)*ATR(22)

for shorting is the same but with the lowest value of the last 22 bars.

The idea is to move your stop loss forward as long the trade goes in your direction. But Never move it down!

The code that I use to add it to IG index chart packaging is this:

RETURN highest[22](High)-3*AverageTrueRange[22](close)

and for short:

RETURN lowest[22](Low)+3*AverageTrueRange[22](close)

this really works well for me and saved me many time from being stopped out!

Lets say you lose 3 times in a row – what do you do? keep going? and if it is 5 times? 10 times?
My system is to have many small losses but one or two big profits that cover all the losses and adds value. This can be very hard on you mind. Sometime you can wait 6-7 trades before you have one good trade. Then you start to think maybe your system is wrong maybe you need to change something or to leave the system all alone.

It is good to tweak the system and learn from mistakes but don’t be tempted to leave your system just because you have a bad strike! Use stop-loss to limit you losses and keep them small. Very small. This can help! And don’t forget to move your stop loss to a profit zone once your trade goes in your direction.

Hi all,

I bought last Thursday BA @ 132.1 and today I’ve sold it at 148.1 for quick 12% return. I am quiet please but of course it could be better. The share price closed today at 150 so I could do better. But I wanted to sell on the upper channel of the EMA 22 and yesterday it was 148 and this is where I placed my limit order.

And because I wasn’t in front the computer all the day I couldn’t see that the EMA has move up and so the channel to 152. In that case I would have change the limit order to 152 to follow the trend. But if it is a beginning of a trend I would buy it back when it touches the top EMA again.

The only problem is that my when I opened the trade my stop was at 120 and my first target was 144. Meaning 12 points risk and 12 points profit target or in other words 1:1 balance which is not good. 1:2 is much better. On the positive side I move the stop loss very quickly to a profit zone once the share went up so for most of the time it was risk free trade.

It is strange that on the day Share magazine quote this blog about BAE (without giving a link, shame!) I suffered a heavy loss with this stock.

I had an opened position at 332 with stop loss at 310. But yesterday report was bad and the share went all the way to 306 tirgered my stop loss and then jump a bit to 312. Today BAE trades on the upper side 315 at 9:00am.

This is so annoying when it happens because stop loss should protect you from heavy loss but in fact there are sometimes that it protects you from profits…

But still it was mis-judgment by me. I thought that BAE is on the way up, but my calculations were wrong. This is part of them game and it is a risk that every trader takes.

I decided to go short against the DAX. But here is my mistake. I did it not because any of my indicators sent me a short signal but because I felt it has already jump to much and correction should come.

So yesterday evening I opened a short position on the DAX at 4941 with stop loss at 5001. By 7:30am I was 35 points in profit so I moved my stop loss to 4940 and went to eat breakfast and drink coffee. By the time I was in front of the screen again I was out. The DAX jumped to 4961 triggered my stop loss and through me out. Then it went down again to 4920.

Here is my my second mistake. I was upset that maybe I am going to miss a big down trend only because I moved my stop loss. So just from pure emotions I placed an order to sell the DAX again this time at 4960 with stop loss at 5021. Needless to say that by 11:00am the order was executed when the DAX jumped to 5000. So now I was -40 points… but it went down again and by the time the Dow opened I was break even. Around 16:00 the DAX was still around 4960 and I felt confidence that it will go to my direction. It closed at 4957 so I even had little profit.

But then the Dow moved up strongly and took the DAX up to 5023. I was out by 20:30 and this time really upset. Then of course it went down and while I am writing these lines it is around 5000. And tomorrow it can still go down, but I am already out.

And here is my mistakes:
1) Because my decision to open the short position wasn’t based on indicators I was nervous
2) Because I was nervous I opened a position after the first one has been closed. This was a mistake.

Good thing that I did:
1) Moved the stop loss to a profit zone on the first trade. If you can do it, then your money is protected.
2) At 21:00 told to myself that it wasn’t my day and my timing was really bad. I learn from it and move on.