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Setting Stop Price

My trading paln is buying many different stocks, but a smaller number of shares of each. With a lot of stocks, setting and following the stop settings can be very tedious. I am struggling to see which of the following stop strategies would work best in my case :

1} SMA
2) Support levels
3) SAR stops
4) Chandler stops
5) Trailing stops

Would like your thoughts on pros and cons of these.


  • I think there are so many methods because no one method suits everyone or every stock. They all work for some people and not for others. But the difference is not necessarily in the methods, it's also in the people who use them - how frequently you want to trade, what kind of draw down you are comfortable with, etc. And there are differences in the stocks they are applied to. Different stocks have different price patterns - some trade smoothly and more or less predictably, others are wilder. Some trend a lot, others range a lot. Each method will have different results with different types of stocks.

    So, it's a matter of trial and error, which is what you are experiencing. I know, no help at all.
  • All of those stops are trailing stops on a bullish security. The thing about stops are they will reduce your overall returns, no if's and's or but's. Profit taking will also. Trading is a tough game.

    I think you are on the right track with smaller positions and more of them. Larry Williams would approve as well. Buy small to win big. If your selection process and the market are cooperating, it's a very beneficial factor. I think that most traders run into issues with over sizing and over trading and not allowing positions to work. Most of the time the buy entry occurs in a bullish stock, often at an extended level and then the position is sold because the buy was not at an "ideal" entry point, and/or the stock didn't MOVE as expected in the time expected, and/or a normal pullback makes you sell the position even though nothing about the price trend has changed. It's still a bullish stock but you don't own it anymore.

    If you are buying based on an indicator, what happens if you just follow the indicator? The Encyclopedia of Technical Indicators (an old text) suggested that the Parabolic SAR provided some advantage over the traditional Moving Average Crossover. Arthur Hill does some pretty good TA analysis on trading systems in the past. You can look up his posts on the StockCharts Blogs

    I think he currently uses a combination of 5 indicators. That's in the Plug In he's selling on ACP anyway. If 3 out of 5 are saying the same thing, go with it until 3 out of 5 are saying to do the opposite. In the past he's suggested using a 3% MA Envelope and buy a move above the envelope and sell a move below the envelope to avoid whipsaws.

    Something else to think about is multiple time frames. View intraday, daily, weekly, monthly charts. If you buy based on the daily, sell based on the weekly. On a point and figure chart, you may buy based on the 3% chart and sell based on the 5% chart.

    I periodically review my positions SOLD to see is I made the "right" or "wrong: call at the time. I often harken back to my trades I made in 2012/14. I did very well in the market. Of course, looking back, I gave up long term wealth for short term gains (and losses). Sold many great names at the beginning of their uptrends because they pulled back.

    I think that this is the ONLY way for you to decide which is best for you. You have to study your results. Either actual or paper trades. Put all the sales into a chartlist and then annotate the buy and sell point(s) or put a horizontal lines on the chart to indicate the actions. If you are a day trader, use 5 minute charts. If you are a longer term investor, use daily, weekly, or monthly charts. On ThinkorSwim you can add horizontal lines on the charts and color them appropriately to see if you are a buy on the pullback or breakout type.

    Knowing these things can help you determine IF you are using the system you think you are, as well as determining where you think that you could tweak it to achieve the results you think you may be lacking.

    I also think most resources and books available on the topic of stock investing do a disservice to the impact that patience has on returns. But then it's hard to sell a book about patience. Who's got time for that?

    I gave up trading back in 2015/16 after I studied the CSS Strategy for point and figure charts for a year and then morphed it into a "system" I call Dynamic CSS Patterns. So I'd say to sell a bullish security when the security turns bearish, whatever that means in your system.

  • Excellent comments @lmkwin .

    I would frame the question this way to newcomers: are you by temperament a trader or an investor?

    A trader's orientation is by nature short term. But if you think you are a trader, you still have to determine how short term a trader you are - a 1 minute trader, a five minute trader, a daily or weekly time frame trader. Do you enjoy fast, intuitive decision making, or slower, deliberative, well-reasoned decision making? Do the tools of technical analysis make sense to you and do you like to use them? How often do you need to be rewarded for your work? How long and deep a draw down can you deal with comfortably?

    If technical analysis is gobbledygook to you, and you like to make fewer but well-researched decisions, then trading is probably not for you. If you enjoy digging into the fundamental numbers for the economy and individual stocks and their industries, and you are willing to wait sometimes a very long time to be proven right, then you are an investor.

    One approach is not necessarily superior to another, objectively. Yes, investors often do well, but often they start with much larger sums, or they must wait a very long time for their large gains. There are 1 minute and 5 minute traders who make millions a year, easily outperforming long term investors, but they are few and they are professionals who do nothing else. Most people are not temperamentally suited to it.

    Some people know what they prefer right off the bat. Others have to try different approaches before finding what is right their circumstances.
  • Thanks for the great responses !
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