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Stop Loss Strategies in the new book

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Joined: 29 Dec 2005
Posts: 71
Location: Lubbock, TX

PostPosted: Mon Jan 09, 2006 10:44 pm    Post subject: Stop Loss Strategies in the new book Reply with quote


Like others, I have received and read with great interest the new book. Thanks for all the wisdom in it. But I have a practical question about the stop loss strategies.

As you often indicate in the Stock chats and in your book (and, I suspect in your for-sale PDFs on Entry and Exit Strategies), a close below the midway point of a long white candle negates the buy signal and should be used to close out a position.

Many of us use automated stop losses and reset them nightly to preserve our gains. Many of us also have our money in IRA accounts that take three business days to clear our funds that were committed to the trade. Thus, I have a dilemma: either I set my automated sell stop at a lower level (perhaps the bottom of the long white candle), or I find my stops being needlessly hit on a hammer day where the selling pressure pierces my stop and then a later buying advance moves the close back above the halfway point. Figure 10.3 in the new book shows a perfect example. If I had set a sell stop at ~$3.22, it would have been hit the day I entered the trade. (Wait three whole business days, funds available on the fourth day.) Miss the 20%+ run. Crying or Very sad

So do we: (1) not set sell stops during the day and wait to act always on market open after reviewing the day's action? or (2) set sell stops lower than midway down a long white candle? or (3) check in during the last half hour of trading to anticipate where the close will be and decide then? or (4) fill in your suggestion.

Several of your suggestions lead me to surmise that you watch your trades all day, or a least check on them near the close. What is your suggestion for those who cannot do that? Question

Thanks again for all your insight.

Peace and all good,

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PostPosted: Tue Jan 10, 2006 12:21 am    Post subject: Re: Stop Loss Strategies in the new book Reply with quote

I trade both long term and short term. I trade long term in my 401k and short term in my Scottrade account. The short term trades are easier for me me to exit as I can watch the intra-day charts and click when I want to. The long term trades are harder as my 401k only allows me to make a trade effective when the market closes (4:00 pm est) which ties my hands as far as point and click goes. So I do the #3 method mentioned above.

Bookworm wrote:
(3) check in during the last half hour of trading to anticipate where the close will be and decide then?

This results in my having to take a LONG term approach to trading my 401k as I can not come up with anything better. Does anyone have any suggestions about trading the 401K ?
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Joined: 17 Oct 2005
Posts: 79
Location: Portland, OR

PostPosted: Tue Jan 10, 2006 12:37 am    Post subject: Reply with quote

The 3 day settlement and the ability to only close a position at the end of the day is based on who is holding your 401k (broker), not a factor of the 401k itself. You could have Scottrade hold a 401k for you and trade at any time of the day; this is the same for settlements, although 3 days is an industry norm for settlements, there has been talk in the indutry to go to T + 1 for next day settlement..

If your 401k is through your current workplace you may be limited, or prohibited from having someone else administer it. For this reason, and others, if you ever change jobs, do not roll your pre-existing 401k into a 401k with your new employer; instead roll it into a self-administered 401k with what ever broker you want (Scottrade, Fidelity, Schwab, etc), they will all make it easy for you to do by filling out a form or two.

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PostPosted: Wed Jan 11, 2006 3:22 pm    Post subject: Reply with quote

Just checked with my broker, Fidelity, and they do not require waiting until settlement before the money can be reinvested on an IRA or 401k account. If you are trading mutual funds they do require wating for settlement. If you are in options they have T+1, next day settlement.

You may want to shop for another broker if yours makes you wait until settlement to reinvest. Fidelity provides great customer service and reasonable commisions.
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Joined: 12 Sep 2004
Posts: 148
Location: australia

PostPosted: Thu Jan 12, 2006 10:06 pm    Post subject: Reply with quote

Stops are very difficult things to lay down strict rules about because all stocks and all trading days are different.
"Rules" such as "half way up a long candle " etc are good guides however it is better to look at what is happening at the time and determine the strength of the move and relate it to the surrounding market. For example if the stock is moving counter to the days overall trading bias then that may have more significance than if it is just drifting with the general market direction.
What I am trying to say I suppose is that if you are able to look during the day then use the guidline (rules) but tie that in with the general assessment of the stock move and the day. Often the big boys who really move the stock big time dont start playing for real until the end of day so a reversal of early sentiment can often happen late in the day.
Stops are best used if you cant be around to watch as well as being set far enough away from the intra day noise to protect from unacceptable losses caused by market movement short term or if for some reason you have not been able to monitor the situation (internet down, you are incapacitated etc)
I use stops but only to protect from disaster. I generally try to reassess things close to close of business on each day and at this point the use of the "rules" can be useful because their generalities can be a good guide for decision making if the days trading looks to be holding strength against you.
If you cant be there at the end of day then the same analysis should apply for the opening next morning where the futures action may tell you to stay in BUT if the futures are against you then be prepared to take some more loss as the stock may gap on open.
Once again analysis of the overall market movement near the close the night before can help predict the expected movement the next day
A bit of a rambling reply but I hope it helps
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Joined: 27 Jun 2004
Posts: 503
Location: Houston, Texas

PostPosted: Fri Jan 13, 2006 11:36 am    Post subject: stop loss strategies Reply with quote

If you do not have the opportunity to watch a position near the end of the day, my suggestion would be to place a stop for any trading below the previous days open. If it closes more than half way down the bullish candle during that day you can make your trading execution based upon how it opens the next day. you may give up a little bit more loss but keep in mind, hopefully the majority of the time the stop loss problem should not occur.

However, if during the day, trading comes all the way back down through the opening price of the previous day you definitely want to be back out of that position immediately.
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