Where should you put a stop | stockbee

9/17/2014

Where should you put a stop

Stops are setup specific .

There is no one universal stop strategy that works. Stop s just one element of your trading system. Unless all elements of trading system are in sync random stop strategy like put stop at 8% or 10% below your entry is not going to work. Plus it is a dangerous advice to give someone if you do not know the setup.

If you are going to be swing trading say momentum bursts , your stop strategy should be in line with that setup idea and should be as close to start of momentum burst. If your setup is trend following your stop should also be at level where trend failure will be. 

If you are going to hold position for long term your stop strategy should reflect that. I have a long term position in XIV which is up 78% from entry and it has no stop. For position trading like that you can control risk by sizing of your position. 

If you are trading short term mean reversion not using stops is best. Again in those situations risk is managed using position sizing. 

Stops also depend on your own personality and returns objective. Some like wild swings in their account and can manage that emotionally. They can take their account up and down multiple times. They like the drama of it. Some like returns with very little drawdown. Their stop and setup strategy reflects that. 

Unless you think through specifics of your entire trading strategy and also your personality and ability to handle risk there is no one specific stop that works. Once you are clear about what your setup and goal is there are many creative ways to use stops.

Your stops strategy is no different than managing relationship in real life. There is no one way to satisfy your boyfriend or girlfriend or husband or wife in a relationship. It depends on kind of girlfriend /boyfriend/wife you have and also kind of  situation and it also depends on your own personality. Some like volatile relations , some like smooth drama free relationship. And also it depends on whether it is one night stand or long term relationship.

Same thing works for stocks.

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