Choosing a Stop Loss Value versus Missing the Bounce Back

11th Jun '20 by Tommy H

9 comments 730 reads

I am currently reviewing the performance of my stop loss' in the last couple of months to see what I can be doing better in terms of protection of capital, which some are obviously helping versus missing the bounce back where there is a sharp spike down even if it is over 1 or 2 days.

So I can think of some total disasters such as Boohoo (LON:BOO) and Marston's (LON:MARS), where I stopped out on the way down and totally missed the bounce (maybe this is just the lack of courage of conviction to quickly lick my wounds and buy back in again?), or Hammerson (LON:HMSO) where it protected some of the gain having revised it the day before it went downwards...

Thoughts beyond a simple 10% below investment or current value, and wisdom appreciated!

Thank you

Tom

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Blissgull

11th Jun '20

Perhaps you will find this article informative.

http://www.quant-investing.com...

Bigclaw

12th Jun '20

Interesting article thanks for posting.

Momoko Miyamoto

Considering current volatility (even in large caps) 10% stops will trigger too easily at the mo. I imagine there are traders & algos going looking to trigger stop losses to profit from them.

Chrischip1981

Im pretty new to this but are pretty risk averse so one of the first things I wanted to know was how not to lose money so stop losses do appeal to me. Im still trying different things and have my main stop loss set at 7.5% but at the moment I am basing my stop loss on the volitility of shares and if I calculate based on the average trading range that my stop is going to need to be ore than 7.5% then I am likely to avoid buying that share. I will also quickly move the stop loss to breakeven as soon as I think is possible.

Yesterday could have been a disaster as I have a lot of US shares and got stopped out of at least 5 or 6 shares but the worst loss I ended up taking was a 5.6% loss. In hindsight I should have sold the night before but we live and learn. I still have some open positions and did set up a short on the Dow to hedge my position so although I lost a lot of money yesterday, without the stops in place it would have been a hell of a lot worse.

Tommy H

Thank you good article and reading through the other research on the site too.,.

UK_Investor_8888

Automatic "Stop Losses" scare me.

Surely, if one invests in the longer term fundamentals, one should ignore the short term movements, focus on the long.

I'm in International Personal Finance (LON:IPF) . This week we've have days with 77p and lows of 57p. None of this is a realistic valuation of the business. Plus500 (LON:PLUS) has had a similar week with a 1050 to 1274 trading range. Pricing is all over the place.

I would prefer to have manual control of my investing!

Guzziman

13th Jun '20

The inherent volatility of any given share is well worth considering before attempting to set a reasonable stop loss.

Personally generally do not get involved with Speculative or Highly Speculative share positions as setting a cash saving loss is inherently problematic as your post insinuates.

The above was a slide included concerning stock style and maybe of some help.

Am not a big fan of the trailing stop loss as this with my own holdings has been known to raise the stop loss on a rising share just before a triggering pull back.

The online platform I use only charge £2 per stop, so am inclined to manually amend my stop loss when and if the SP rises. This does require checking SP's and stop loss levels every couple of days though.

Ordinarily I set the initial stop at 12% below average cost per share figure. This idea is taken from;

https://www.amazon.co.uk/Art-Execution-investors-millions-markets/dp/085719495X

Well worth reading.

thank you

14th Jun '20

Its going to depend what sort of shares you are in I guess. Ive found most of the breakouts I have been trying to trade can usually stand between 2-3 days of a pullback before they start triggering and thats on a maximum of 7.5% stop. Anything with a high volitility a low stop is not going to cut it but people should really be aware of that before getting in the trade.

Choosing a Stop Loss Value versus Missing the Bounce Back

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Tommy H

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