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Where to put your stop loss

  • 14-04-2010 03:05PM
    #1
    heno55
    Registered Users, Registered Users 2 Posts: 123 ✭✭


    Hi all i am looking for advice or general opinions on where one should set a stop loss,i have some investments that are up from 10% to 80% and would like to lock in these gains, i dont want to set the stop too close as i have made this mistake in the past and got stopped out just to see the sp continue on its merry way up,so i would like to hear other peoples opinions on where to set the stop be it 3% 5% or 10%.
    And when initially buying shares where would you set the stops.


Comments

  • #2
    foxyboxer
    Closed Accounts Posts: 3,528 ✭✭✭foxyboxer


    You raise a valid point as Money Management, Position Sizing, Risk Management call it what you will is the foundation for trading. It answers the basic question of "How much will I trade?"

    Think of it in terms of:
    Good Plan + Good Outcome = Deserved Success
    Good Plan + Poor Outcome = Bad Luck
    Bad Plan + Good Outcome = Dumb Luck
    Bad Plan + Poor Outcome = Poetic Justice

    I would suggest you use a trailing stop loss.
    For example, you have €50,000 capital.
    You want to only risk 1% of your capital on a trade = €500.
    You like Paddy Power at €23.99 on Monday 25th January.
    You will use a 10% stop loss = sell at €21.60 (don't even think about it, just have the discipline to get out)

    Using the following calculation, You can determine how many shares to buy
    http://oak.ucc.nau.edu/del/stockcalcs/sizer.aspx

    So You will buy 209 PP shares at 23.99 = €5,013.91
    Should the price fall and go to €21.60, You will sell
    21.60 * 209 = €4,514
    You will only lose 1% of your capital. You still have €49,500 overall.

    With the trailing stop loss, should the price of Paddy Power rise, You will adjust the stop loss upwards each time the price increase.

    E.G. On Friday 29th January, the price is €24.59
    Your 10% stop loss is now €22.13
    Should the price now fall (you would make less of a loss), You leave the stop loss as it is. Only ever increasing the stop with an overall increase in price.

    Trailing Stop Loss:

    Share P Trailing Stop
    €24.59 €22.13
    €24.99 €22.49
    €25.15 €22.64
    €26.03 €23.43
    €26.93 €24.24

    Before you get in, know when you'll get out!
    This method works really well with protecting your capital and locking in profits.
    This coupled with sound fundamental analysis is an excellent strategy. i.e. no debt, price is trending up etc


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