|
PureBytes Links
Trading Reference Links
|
Bill Saxon wrote:
> What is the groups opinion of using a stop on
> each security of perhaps "Protect 90% of Capital and 90% of the Gain
> over 5%", or some variation thereof, and rely it to get out of the
> Market to the extent warranted? I just get tired of fretting about
> it.
>
Bill,
It is difficult to come up with fixed stop losses that work consistently
for all stocks. This may only be useful if you are emotionally
uncomfortable with losing more than a certain amount of your
capital/profit. If you are trying to minimize your losses while hoping
not to get stopped out during temporary correction you have to be more
flexible.
You might want to set your stop loss based on the volatility of the
stock. One simple method is mentioned in Brian Millard's book "Winning on
the Stock Market". He suggests isolating trends in the past history of
each stock which you would like to trade and adjust the value of the stop
loss to keep you in the market for the optimum period and optimum profit.
You could optimize in one period and test it in another. Another useful
technique described is channel analysis and exiting at the top of the
channel.
If you don't believe in optimization, the parabolic SAR could be useful,
as this progressively raises and tightens the stop loss. In the standard
metastock indicator, the step size can be adjusted (rate of rise of the
stop loss) and also the maximum value the step can reach, but not
dynamically (unless you write a custom formula).
Jeff Katz has published several variations of exits/stop losses in Tech
Analysis of Stock & Commodities, Feb, 98, where he describes fixed exits,
trailing exits, profit target exits, time-based exits, volatility exits,
barrier exits and signal exits. In the March issue he discusses how to
test your exit strategies.
Darryl
|