Where is a good place to put a stop order for a stock?

Question

at what price/percentage should I put a stop order on a stock. For example should i put the stop order at a 2 percent loss or 5 percent. Also should I use a trialing stop instead of a plain stop.
thanks

Answer 1

A trailing stop makes sense when things are marching upward--I can't tell you how much money I lost learning that when giving back my profits when the cycle turned and I missed it. The real trick to the percentages is figuring the volatility. Look at UNP, for instance. A stop loss that was too small would have you constantly kicked out the action. So look at your stocks of interest as if you were trying to guess a girl's periods. It swings up and abruptly swings down and as long as the girl is interesting, watch the falls and say and ask yourself, "Am I going to get lucky?" Then jump in and ride her up, ready to get off when she changes her mind again.

Answer 2

Using a fixed % can sometimes stop you out during normal swings. Another concept is to identify support and resistance and place your stops somewhat below support on a long trade and somewhat above resistance on a short trade. I've marked up a chart with support and resistance as an example: http://stockcharts.com/h-sc/ui?s=ACTL&p=D&yr=0&mn=9&dy=0&id=p88351166551&a=92166070&listNum=14

Price movement will tend to stall around support/resistance and after consolidating a bit will either bounce off the support/resistance or break through. You want to not get stopped out if it bounces but you do want to get stopped out if it breaks through. A checklist you could go through is as follows:

1. Determine the maximum % loss you are willing to take
2. Determine the support levels (for a long) and the resistance levels (for a short).
3. If on a long, a support level falls within your loss tolerance with a margin (1% more or some number you feel comfortable) then you can make the trade. If no support level is within your max lost %, then you should not trade the stock until that criteria is met.

So on the chart I've linked to, let's say that on Feb 13th, the stock is at 16.00 and you want to buy. You have a max loss limit of 3% which is 48 cents. You would place your stop at 15.52 IF it falls outside a support. The closest supprot is at 15.50 so you would not make the trade. But if your max loss limit was 5% which would be 80 cents, your stop would be at 15.20 which is outside the support level, with tolerance and it's ok to make the trade. In this example, I would put my stop at 15.25. On the 22nd when the price broke through resistance at 16.80, I would move the stop to below the support at 16.25 - probably at about 16.10. As price climbs, keep moving your stop to just below a trailing support price.

Stockcharts.com has a chart school (free) so you might go learn about how to determine support/resistance: http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:support_and_resistan

Answer 3

Answer is very dependent on a bunch of variables, like the Beta of the stock in question, normal trading range, news coverage of the sector and the particular industry. A trailing stop is similar, you are really just 'moving the table' a bit. I only use stops when I am not able to monitor my positions actively, and then only if I am dealing with a stock I am already wary of.

Sorry but your question can't be properly answered by anyone but you. Your trading personality can't be read or understood by anyone else!

Good luck and Good Fortunes in the markets!